California digital software sales tax 2027 — is this current law I need to follow?

A California digital-software sales-tax expansion was announced in May 2026 with a proposed effective date of January 1, 2027. As of mid-May 2026, the proposal has been announced but NOT enacted. It still requires legislative passage, signature, and an implementation regulation cycle before becoming law. The proposal could be amended, delayed, or fail entirely during the legislative process. There is no current California law requiring SaaS sellers to collect California sales tax on subscription services sold to California customers.

Under current California law (as of May 2026), SaaS is generally EXEMPT from California sales and use tax. California's existing rule treats true SaaS — where the customer accesses functionality hosted on the provider's servers, with no software download or possession — as a nontaxable service rather than a taxable sale of tangible personal property or prewritten software. The historical line is: downloaded software (even via electronic delivery) is taxable; software accessed via the cloud without a download is not. This treatment has held for years and is current as of this answer.

If the proposal is enacted, California SaaS sellers would face new obligations starting January 1, 2027: (1) register with the California Department of Tax and Fee Administration (CDTFA) if you exceed the $500k economic nexus threshold, (2) collect California sales tax (7.25% state plus local rates, often 8.5-10.5% combined) on SaaS subscriptions sold to California customers, (3) remit on a monthly or quarterly basis depending on revenue. The proposal also includes various transitions, possible exemptions for B2B vs B2C distinctions, and grace periods. None of this is operative until law is enacted.

For your CFO: do NOT register California sales tax pre-emptively based on a proposal. Continue current compliance: California sales tax registration is only required if you have nexus from taxable activities (sale of tangible goods, downloaded software, or specifically enumerated taxable services) AND exceed the $500k economic nexus threshold. SaaS sold via subscription is not currently taxable in California. Set a calendar reminder for fall 2026 to monitor the legislative status. If the bill is enacted, you'll have 3-6 months notice to register. The May 2026 announcement is news; the rule isn't real until it's law.