Court Case: Navistar International Transportation corp v. California Board of Equalization

Question 1

Who were the parties involved in the case?

Answer 1

• Navistar
• CA BOE
• CA Supreme Court

Question 2

What year did this case take place in?

Answer 2

1994

Question 3

What were the facts of the case?

Answer 3

• Navistar sold all of a division’s assets to another company
• CA assessed tax on all assets that contained trade secrets
• CA said all of the assets were TPP and therefore taxable
• Navistar said the drawings/designs and manuals/procedures were not TPP and that the computer programs were custom programs, so none of it was taxable

Question 4

What was the decision of the case?

Answer 4

• Tax was approved
• Supreme Court ruled that the designs/drawings and manuals/procedures were TPP since they weren’t transferred prior to the service and since no copyright was transferred.
• They also ruled that the computer programs were not custom since custom software that is later resold is no longer custom.

Question 5

Which tax concept was at the forefront of this case?

Answer 5

• True object test

Question 6

What was the significance of the case?

Answer 6

• It created tangible vs intangible product distinctions
• Showed that the true object test only applies to bundled transactions (services and TPP), not intangible and tangible transactions
• Showed that custom software is exempt as a service