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, extending California sales and use tax to digital products: prewritten software transferred on tangible media, transferred electronically, or accessed remotely, which reaches SaaS, 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. Emergency regulations from the CDTFA are expected before the operative date.

The change closes nearly four decades in which California taxed software only when it moved on tangible media. Sellers and buyers of remote-access software with California customers have until January 1 to source, price, contract, and paper the transition, and the questions the new statute raises are already familiar from other states in 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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