California Extends Sales and Use Tax to Prewritten Software, Including SaaS, on January 1, 2027
What changed
Starting January 1, 2027, SB 122 extends California sales and use tax to prewritten computer software, including software transferred electronically or accessed remotely, which is the SaaS case. Software sold to a California customer that was previously delivered tax-free becomes a taxable sale, and because amendments to the Sales and Use Tax Law flow into the Bradley-Burns local tax law automatically, local and district rates apply too. The statute excludes digital assets, digital audio works, digital audiovisual works, digital books, digital video game products, digital visual works, and digital infrastructure, meaning cloud services on which a customer deploys and runs their own software. SB 122 was approved by the Governor and filed with the Secretary of State on June 29, 2026.
Who it applies to
California retailers and purchasers of digital products, particularly prewritten computer software sold electronically or accessed remotely (e.g., SaaS vendors and their business customers).
Key dates
- Effective date:
- January 1, 2027
New digital product sales and use tax obligations take effect; compliance required by this date.
What employers may need to do
- Determine whether what you sell is prewritten computer software transferred electronically or accessed remotely. Custom software and the seven statutory exclusions stay outside the definition.
- Map your California customers to a taxable location so the correct Bradley-Burns local and district rates can be applied.
- Set up collection, reporting, and remittance with CDTFA before January 1, 2027, including a seller's permit if you do not already hold one.
- Review contracts and pricing that assume software is not taxable in California, and decide whether tax is added to or absorbed in current rates.
- Watch CDTFA for implementing guidance. SB 122 appropriates $750,000 to administer these provisions.
Official source
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260SB122Detected by RegWatch monitoring on July 2, 2026. Always confirm details against the official source above — this page is a summary, not legal advice.
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