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Is SaaS taxable in California? The January 2027 change
Beginning January 1, 2027, sales and use tax generally applies to retail sales of digital products sold in California or bought from a retailer for storage, use or other consumption here. CDTFA says SB 122 (Stats. 2026, Ch. 23) expands tangible personal property to include digital products delivered on media, electronically or through remote access.
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General information, not legal or tax advice.
Identify SaaS within the new digital-product definition
CDTFA includes prewritten software delivered on tangible media, electronically or remotely in its digital-product definition. That includes SaaS giving a customer access to the provider’s prewritten software on cloud infrastructure through a browser or program interface. The general change starts January 1, 2027 under SB 122 (Stats. 2026, Ch. 23). Review the product actually sold rather than relying only on a subscription label.
Sources: CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Overview; CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Definitions
Distinguish excluded products from taxable software access
CDTFA excludes digital assets, audio and audiovisual works, digital books, video game products and visual works from this definition. Digital infrastructure such as IaaS or PaaS used to create, deploy or run the customer’s own software is also excluded. These distinctions concern the new digital-product definition; classify mixed offerings with your tax adviser.
Sources: CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Definitions
Review custom work and human-delivered services separately
Custom software prepared for a single customer is exempt except for a basic operation program; modification of prewritten software is custom only to the extent modified. CDTFA also describes an exemption for electronically delivered services primarily involving human effort that starts after the customer request. That exemption does not cover the right to use the provider’s prewritten cloud software.
Sources: CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Retailers and Definitions
Prepare retailer records and customer address data
Retailers generally must register, report sales tax or collect use tax on taxable California sales, maintain records and allocate local and district taxes. For remote sales, CDTFA prioritizes the known California billing address, then delivery address, payment-instrument mailing address and other mailing address. If no California address is available, the sale is treated as outside California. Preserve the address evidence used for each sale.
Sources: CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Retailers and Definitions
Check purchaser use-tax exposure and current instructions
Purchasers may owe use tax directly on digital products bought on or after January 1, 2027 when the seller did not collect it. CDTFA presumes a product bought outside California and used here within 90 days was purchased for California use. The supplied CDTFA guidance says emergency regulations are being drafted and further direct-payment and waiver instructions will be added. Check the linked official guide for current implementation instructions.
Sources: CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Purchasers; CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Retailers and Definitions
Sources: identify SaaS within the new digital-product definition
- CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Overview
- CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Definitions
- CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Retailers and Definitions
- CDTFA, Tax Guide for Retailers and Purchasers of Digital Products, Purchasers
Online sales and purchase records
Prepare sales records for digital-product reporting
Tidwell helps organize sales, purchase and tax records for reporting and works with your CPA on product classification and tax treatment.