California – Extension of Sales Tax to Digital Products Delivered Remotely 

Governor of California, in the May’s Revision to California’s 2026-2027 budget, proposes the expansion of the sales and use tax to transactions involving digital products transferred on physical medium, transferred digitally, or accessed remotely(cloud access), including prewritten computer software, and SaaS, among others. 

The submitted Budget proposal provides a statutory sales and use tax framework for a broad array of new groups of digital products based on the fact that the manner in which the software is delivered doesn’t influence the sales tax applicability. 

Timeline 

If the proposed Budget 2026/2027 indicates that starting on January 1, 2027, sales and use tax shall apply to supplies of digital products or services, where the customer is a California resident. 

California Sales Tax on Digital Products 

Currently, the sales tax applies to software transmitted on tangible media. The proposal should extend the state’s sales tax to the sale of most of the pre-written software, regardless of how the software is delivered. 

Custom software(customized software per client request) would remain exempt.   A large share of the newly taxed transactions likely would be B2B sales.