California
Understanding SaaS Taxability in California
Is SaaS Taxable in California?
As of June 29, 2026, SB 122 declares that “digital product,” and we’ll explain what this means precisely, will be taxable in California effective January 1, 2027.
Why California and Why the Cloud?
The concept of digital product taxability is murky and defined fluidly from state to state. Under SB 122, Sec. 8, 6010.9. (a), the rule clarifies that “sale” and “purchase” do not include the design, development, writing, translation, fabrication, lease, or transfer of custom computer software other than a basic operating system.
Determining Taxability of SaaS in California
SB 122, Sec. 8, 6010.9. (b) defines key terms: a “computer” is any programmable electronic device with a CPU and memory; “computer software” is a set of coded instructions that directs such devices to perform tasks; and “custom computer software” is software specially ordered or modified for a single customer excluding off-the-shelf products, except to the extent they are actually modified for that customer.
Nexus Thresholds for California
Establishing a tax nexus in California obligates a business to collect and remit sales tax. Nexus can be established through:
- Physical Presence: Having an office, warehouse, employees, or other physical presence in the state.
- Economic Presence: Exceeding $500,000 in gross sales in California during the current or previous calendar year.
Sales Tax Compliance Checklist
To ensure compliance with CDTFA’s regulations, businesses should:
- Register for a California seller’s permit with the CDTFA.
- Collect California sales tax and applicable local/district rates per the purchaser’s billing or payment address for delivery, or where the sale occured for in-person sales.
- File returns and remit any tax due to CDTFA at the appropriate filing frequency, whether that be monthly, quarterly, or annually.
Examples of Taxable vs. Non-Taxable Products in California
- Taxable:
- Computer software transferred to tangible storage media, transferred electronically, or accessed remotely.
- Non-Taxable:
- Many other digital goods remain exempt, more news to come as California elaborates on this new law.
Additional Resources
Multi-state sales tax compliance can be messy. Miles Consulting can assist with your business needs. For Further Information on California’s SaaS taxability, or visit California Legislative Information for more information.
California
Understanding SaaS Taxability in California
Is SaaS Taxable in California?
As of June 29, 2026, SB 122 declares that “digital product,” and we’ll explain what this means precisely, will be taxable in California effective January 1, 2027.
Why California and Why the Cloud?
The concept of digital product taxability is murky and defined fluidly from state to state. Under SB 122, Sec. 8, 6010.9. (a), the rule clarifies that “sale” and “purchase” do not include the design, development, writing, translation, fabrication, lease, or transfer of custom computer software other than a basic operating system.
Determining Taxability of SaaS in California
SB 122, Sec. 8, 6010.9. (b) defines key terms: a “computer” is any programmable electronic device with a CPU and memory; “computer software” is a set of coded instructions that directs such devices to perform tasks; and “custom computer software” is software specially ordered or modified for a single customer excluding off-the-shelf products, except to the extent they are actually modified for that customer.
Nexus Thresholds for California
Establishing a tax nexus in California obligates a business to collect and remit sales tax. Nexus can be established through:
- Physical Presence: Having an office, warehouse, employees, or other physical presence in the state.
- Economic Presence: Exceeding $500,000 in gross sales in California during the current or previous calendar year.
Sales Tax Compliance Checklist
To ensure compliance with CDTFA’s regulations, businesses should:
- Register for a California seller’s permit with the CDTFA.
- Collect California sales tax and applicable local/district rates per the purchaser’s billing or payment address for delivery, or where the sale occured for in-person sales.
- File returns and remit any tax due to CDTFA at the appropriate filing frequency, whether that be monthly, quarterly, or annually.
Examples of Taxable vs. Non-Taxable Products in California
- Taxable:
- Computer software transferred to tangible storage media, transferred electronically, or accessed remotely.
- Non-Taxable:
- Many other digital goods remain exempt, more news to come as California elaborates on this new law.
Additional Resources
Multi-state sales tax compliance can be messy. Miles Consulting can assist with your business needs. For Further Information on California’s SaaS taxability, or visit California Legislative Information for more information.
