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MARKLENO2012.jpgThe Legislature's two-house budget conference committee rejected Gov. Jerry Brown's proposal to "clarify" the state's power to collect sales taxes on computer software Tuesday.

The eight-member committee unanimously approved a motion to leave the issue out of the budget, saying it will receive a full airing in separate legislation, rather than be included in a budget-related "trailer bill."

Nearly three decades ago, the Legislature and then-Gov. George Deukmejian decreed that custom software - programming for a large customer's specific needs - would be free of sales taxes, but state tax officials assumed that they could continue to tax off-the-shelf software. Software taxes generate about $300 million a year in state revenue, plus millions more for local governments.

Recently, however, that assumption has been challenged by a series of court decisions because another section of state tax law exempts ":technology transfers." Brown proposed, therefore, that a budget trailer bill give the state explicit power to tax non-custom software delivered on discs or other physical media.

Conference committee members were warned, however, that rapidly evolving technology could make writing such legislation difficult, and they decided to leave it out of the budget.

PHOTO: Sen. Mark Leno, D-San Francisco, shown here during session in the Senate chambers in March, is chairman of the two-house budget conference committee. The Sacramento Bee/Hector Amezcua


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