Dell, Inc. v. Superior Court

Dell, Inc. (defendant) sold computers and related services to its customers. A standard computer package included hardware, software, a warranty, and a service contract. The packages were offered at a lump-sum price. Although the components were itemized separately, they were not priced separately on a customer’s invoice. Internally, however, Dell assigned individual prices to each component, and those prices were included on price lists and in Dell’s database. Customers could exclude the standard service contract from their computer packages, which would reduce the lump-sum price of the package. Customers could also upgrade the standard service contract to a more expensive extended-service contract. Dell collected sales tax from its customers on the lump-sum price of a computer package, meaning the sales tax applied to the intangible software and service components as well as the tangible hardware. California applied a sales and use tax to tangible personal property but not to services or intangible property. A group of consumers (plaintiffs) filed a lawsuit against Dell, alleging that Dell illegally collected sales and use taxes on its service contracts. Dell filed a cross-complaint against the California State Board of Equalization (the board), seeking a refund of the taxes it passed along to the board. Dell and the board argued that Dell was entitled to collect sales tax on an entire computer package, including the service contract, because Dell sold its package at a lump-sum price and, therefore, the taxable and nontaxable components of the package were inseparable. The trial court held that the sales of the service contracts were not subject to taxation. Dell petitioned the California Court of Appeal for a writ of mandate, asking the court of appeal to reverse the trial court’s decision.