## Facts

- South Central Bell Telephone Company operated sixteen telephone central offices in Orleans Parish during January 1, 1986 through April 30, 1990.
- Each central office used switching equipment containing computer processors operated by software programs.
- Bell used (1) switching-system software for central offices and (2) data-processing software for accounting and related functions.
- Bell obtained software under out-of-state license agreements giving limited use rights for designated programs on designated equipment at specified locations; the agreements restricted transfer, post-expiration use, and disclosure.
- Switching-system software was delivered on magnetic tapes; data-processing software was transmitted electronically and loaded into Bell’s computers.
- New Orleans assessed use tax on the software (as “tangible personal property”) and sales tax on related maintenance services under the city sales and use tax ordinance.
- Bell paid under protest and sued for a refund.

## Issues

1. Whether computer software used by Bell constituted “tangible personal property” (corporeal movable property) subject to the City of New Orleans sales and use tax.
2. Whether the method of delivery (magnetic tape versus electronic transmission) affected taxability as tangible personal property.
3. Whether software-related maintenance services constituted taxable “repairs” under the City Code.

## Decision

- The Louisiana Supreme Court reversed the lower courts’ rulings that the software was intangible and not taxable.
- The court held the software was tangible personal property subject to the City’s sales and use tax.
- The court held the maintenance services at issue were not taxable as “repairs” under the City Code.
- The case was remanded for further proceedings consistent with these holdings.

## Legal Principles

- Computer software, once recorded in a physical form or installed and stored for machine operation, may be classified as corporeal (tangible) property for sales and use tax purposes.
- The delivery mechanism for software (physical media or electronic transmission) does not control classification when the software ultimately exists in a physical, machine-readable form used in the taxing jurisdiction.
- Transaction labeling as a “license,” and contractual restrictions on transfer or use, do not prevent taxation when the taxpayer acquires and uses software embodied in tangible form within the jurisdiction.
- Software-related service agreements are taxable only if they fall within the ordinance’s taxed service categories; services that do not “repair” or restore damaged property are not taxable as repairs.

## Conclusion

The court treated computer software embodied in machine-readable form as taxable tangible personal property under New Orleans’ sales and use tax, regardless of licensing structure or delivery method, while excluding the associated maintenance services from tax because they were not taxable repairs.


S. Cent. Bell Tel. Co. v. Barthelemy, 643 So. 2d 1240 (La. 1994)