California Sales Tax on SaaS

Senate Bill 122 (Stats. 2026, ch. 23), signed June 29, 2026, amends Revenue and Taxation Code section 6016 and adds section 6016.1, under which prewritten software is taxable whether transferred on tangible media, transferred electronically, or accessed remotely. The change brings electronically delivered software and software as a service (SaaS) into California sales and use tax, operative January 1, 2027. Custom software prepared to the special order of a single customer stays outside, as do digital books, audio and audiovisual works, video games, digital assets, infrastructure offerings sold as computing capacity rather than software access, and services whose value primarily reflects human effort performed after the customer's request. The statute sources a remote sale through a hierarchy of the purchaser's known addresses, presumes California use when a product purchased elsewhere is used in the state within ninety days, and shifts collection to the purchaser under a direct payment mechanism once purchases from a single retailer exceed $5 million in a year. Section 34 of Senate Bill 122 lets the California Department of Tax and Fee Administration adopt its implementing regulations as emergency regulations; drafts have circulated, and none had been filed with the Office of Administrative Law as of October 20, 2026.

The change closes nearly four decades in which California taxed software only when it moved on tangible media. Sellers with California customers, and California buyers of remote-access software, have until January 1 to settle sourcing, pricing, and contract terms for the transition. The questions the new statute raises are already familiar from the library: how a SaaS sale is sourced when the users sit in many locations, examined through New York's user-location rule, and where the line runs between a nontaxable service and taxable property delivered electronically, the boundary California has long policed in design and finished art.

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