Overview
- Press reports say lawmakers have sent the budget package containing the software tax to Gov. Gavin Newsom, but the proposal is not yet law and awaits final action and implementation details.
- The proposal would make prewritten software taxable regardless of delivery method, covering electronic downloads and remote-access software as a service while preserving an exemption for custom-built software.
- State estimates project roughly $450 million in General Fund revenue and $560 million in local sales tax revenue in the half-year it first applies, and about $900 million and $1.1 billion annually on a full-year basis.
- Tech industry groups have warned the change would raise costs for businesses that rely on cloud tools and enterprise subscriptions, and vendors say the final language will determine how bundled services and fees are taxed.
- Significant open questions remain about sourcing rules, treatment of bundles and customization, and whether buyers must self-assess use tax, so software sellers and purchasers should review contracts, invoicing, and tax systems now in case the change takes effect.