Sales Tax Will Apply to Digital Products Starting in January 2027

As part of California’s budgetary strategy, the Legislature recently enacted an upcoming expansion of California’s sales and use tax to digital products (i.e., pre-written software) whether accessed in physical media or electronically/online, such as software-as-a-service subscriptions.  Previously, software delivered or accessed electronically was not sales-taxable in California.  The expansion would take effect on in-scope transactions starting on January 1, 2027.  A custom-designed/coded software solution built specifically for and unique to a particular customer would be excluded from the expanded sales tax on digital products.  Depending on locality adjustments, California sales tax rates can range from 7.25%–11.25% on taxable purchases which would now include digital products starting January 1st.