Status: Passed by California lawmakers as part of the 2026-27 budget package and expected to take effect January 1, 2027, if signed into law.

California is expanding its sales tax to cover many forms of digital software that were previously not taxed.

This includes:
• Downloaded software
• Software-as-a-Service (SaaS) subscriptions
• Cloud-based software accessed remotely
• Certain AI and digital software products accessed online

Currently, much of this software is not subject to California sales tax. The new law would change that.

In simple terms:
If your business pays for software like Salesforce, DocuSign, Figma, Adobe, Workday, or similar cloud services, you may start paying sales tax on those purchases.

• California says the tax code hasn't kept up with the digital economy.

• Supporters argue that software bought online should be treated the same as software bought in a store.

• Critics argue this is simply a new tax on technology, businesses, and innovation.

• Many software companies and business groups worry it will increase costs for California businesses.

• The central question:

➡️ Should California tax digital software the same way it taxes physical products?

👍 Supporters Say:

• Modernizes California's tax system.
• Treats digital and physical software equally.
• Generates revenue without increasing income tax rates.
• Helps close budget gaps.

👎 Critics Say:

• Raises costs for businesses and consumers.
• Could discourage software investment in California.
• Functions as a new technology tax.
• May especially impact startups and small businesses.

This isn't a tax on using the internet. It's a tax on many digital software products that have historically avoided California sales tax.

If you believe digital products should be treated like physical products, this may seem fair.

If you believe software subscriptions and cloud services should remain untaxed, this looks like a significant tax increase on businesses and technology users.

Either way, California is making one of the biggest expansions of its sales tax base in years.