Downloading a new tax in the Golden State – California’s new software tax explained
07.22.2026 | Duration: 59:09
California has enacted major changes to its taxation of prewritten software, effective January 1, 2027. The new law extends the state's sales and use tax to downloaded and remotely accessed software for the first time, impacting nearly every business operating in the state.
In this episode of This Week in State Tax, host Harley Duncan is joined by Jim Kuhl, a Director in KPMG's Sacramento office, to discuss the significant implications of California's new budget trailer bill, S.B. 122. Signed into law in June 2026, this bill overhauls the state's approach to sales and use tax by expanding its reach to prewritten software that is downloaded or accessed remotely.
Harley and Jim break down what this change means for any business that sells, buys, or has users of software in California. They cover key aspects of the new law, including specific exemptions for certain digital products, the new sourcing rules based on customer addresses, and a potential tax trap involving out-of-state software use. The discussion also explores a unique $5 million sales threshold that shifts the tax reporting responsibility from the seller to the buyer, requiring the buyer to obtain a use tax direct pay permit. Tune in to understand these critical changes and learn about upcoming guidance from the California Department of Tax and Fee Administration (CDTFA).
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