California Proposes Emergency Regs Taxing SaaS and Digital Products
CDTFA's proposed emergency rules under SB 122 would tax SaaS and digital products from 1 Jan 2027, shift collection duty to purchasers past a US$5m threshold, and permit multiple-points-of-use apportionment.
SB 122 (Stats. 2026, ch. 23), signed 29 June 2026, extends California sales and use tax to SaaS, remotely accessed software and other digital products from 1 January 2027, redefining "tangible personal property" to include digital products and associated copyright or patent interests, while excluding digital assets, audio and audiovisual works, books, digital infrastructure (IaaS/PaaS), video games and visual works. CDTFA has proposed emergency regulations that take effect on Office of Administrative Law approval, skipping standard notice and comment; the comment deadline was 24 September 2026 and the text remains subject to change.
Two features matter for counsel on both vendor and customer sides. A US$5 million per-purchaser annual gross receipts threshold shifts collection liability to the purchaser, with self-assessment triggered by the transaction that crosses it and a two-year lookback from 2028; purchasers may seek a CDTFA waiver. Subscription periods straddling the effective date are taxable as to payments on or after 1 January 2027 regardless of contract or invoice date. Proposed Regulation 1600.2 would permit "multiple points of use" certificates allowing headcount- or device-based apportionment, with server-location methods deemed unreasonable.
Practical next steps: amend multiyear contracts, configure tax engines and exemption logic, and track cumulative spend per vendor while monitoring OAL action.