California Publishes Guidance on Sales and Use Tax for Electronically Delivered Digital Products from 2027

Summary

California sales and use tax generally applies from 1 January 2027 to retail sales of digital products, including associated copyright or patent interests, sold or purchased for storage, use or consumption in California.

Senate Bill 122 expands tangible personal property to include qualifying digital products delivered on storage media, transferred electronically or accessed remotely, including non-custom computer software.

Retailers may have registration, return and payment obligations, while purchasers may have to self-report use tax where the retailer does not collect it or where specified direct-payment rules apply.

Extended article

The California Department of Tax and Fee Administration has issued a detailed guide explaining the rules introduced by Senate Bill 122. The legislation brings many electronically delivered or remotely accessed products within the sales and use tax base, materially changing California’s historic treatment of digital products and prewritten software.

The guide addresses definitions, exemptions, retailer registration and reporting, sourcing and purchaser obligations. It also explains circumstances in which a retailer may be relieved from liability or from the obligation to collect use tax. For certain electronically transferred or remotely accessed digital products, sales exceeding the statutory aggregate threshold to the same purchaser may shift direct-payment responsibility to that purchaser.

Suppliers should classify digital offerings, determine where a product is used, assess California registration and collection obligations, and update billing systems for the 1 January 2027 start date. Purchasers should review whether untaxed digital-product acquisitions create a direct California use-tax liability.

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