Summary
- California proposes extending sales and use tax to digital prewritten software, including SaaS, whether delivered via cloud access, download, or other electronic means.
- The reform would treat standardized software products as taxable regardless of delivery method.
- Custom-developed software and certain categories of digital content would remain outside the scope of taxation.
Article
The proposed California reform, as discussed in the 2026–2027 budget process (including SB 122), aims to modernise the state’s sales tax base by bringing digital prewritten software and SaaS within the scope of taxable “tangible personal property.” If enacted, the rules would apply from 1 January 2027 and would tax software products provided on a standardised basis, including cloud-based subscriptions. The proposal maintains distinctions between taxable prewritten software and exempt custom software solutions, and excludes certain digital media products. The objective is to align California’s tax treatment of digital services with other US states that already impose sales tax on SaaS.
Sources
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