Key figures
California receivables
2026, with sources
SaaS becomes taxable on January 1, 2027
For decades California taxed software only when it arrived on something tangible, so SaaS and downloads were not taxed. SB 122 (Stats. 2026, ch. 23) ends that. From January 1, 2027, “digital products” — prewritten software on media, transferred electronically or accessed remotely — are tangible personal property for sales and use tax. CDTFA’s special notice names prewritten SaaS providers among those affected.
Not everything digital is in: digital infrastructure (cloud platforms customers use to build and run their own software), custom software, digital products representing a service other than SaaS, and products bought solely for use outside California are excluded or exempt. The place of sale is generally the customer’s address, and the place of use is wherever the person accessing it is.
Registering and collecting
California’s economic nexus test is $500,000 of combined sales into the state in the current or preceding calendar year, counting related companies, with no transaction count. A company with California employees or offices already has nexus and needs a seller’s permit from its first taxable sale. The statewide rate is 7.25%, plus district taxes of 0.10% to 2.00% that depend on where the customer is.
For billing, that means capturing a service address per customer, mapping it to a district rate and keeping exemption documentation. In the books, tax collected is a liability, not revenue, and invoices issued in 2026 for 2027 service periods should be reviewed against CDTFA’s guidance before they are sent.
Deadlines
- Quarterly, quarterly prepayment or annual, as assignedFiling frequency assigned by CDTFA at registrationSales and use tax return
The federal baseline
This page covers what California adds. The federal rules underneath it apply here too.
Common questions
Is SaaS taxable in California?
Not yet. Through 2026, remotely accessed prewritten software is outside California sales tax. SB 122, signed June 29, 2026, changes that on January 1, 2027: prewritten software transferred electronically or accessed remotely, which CDTFA says includes SaaS, becomes taxable. Custom software, “digital infrastructure” such as cloud platforms customers build on, and products used solely outside California are excluded.
When do we have to register to collect California tax on SaaS?
The $500,000 threshold counts sales into California in the current or prior calendar year. CDTFA’s special notice says out-of-state sellers of digital products “engaged in business” in California must register and collect use tax, so a SaaS company that reaches the threshold should expect to register before January 2027. The place of sale is generally the customer’s address, which sets the district rate.
Should we change our contracts before 2027?
If your 2027 contracts run across the new year, yes, it is worth reviewing them now. Whether access sold under a pre-2027 agreement is taxable after January 1 is one of the open questions CDTFA is addressing in its regulations; the agency’s digital products guide is where the answer will be published.
Receivables next door
- AZArizona receivablesArizona’s TPT is a tax on the seller, at 5.6% plus city rates. SaaS is taxable as a personal property rental, but the $100,000 economic threshold counts only retail sales.
- NVNevada receivablesA 6.85% state sales tax plus county rates, on tangible goods only — SaaS is not taxable. Remote sellers register at $100,000 or 200 transactions.
- OROregon receivablesOregon has no sales tax, so SaaS sold to Oregon customers is untaxed at the register, but Oregon receipts over $1 million carry the 0.57% Corporate Activity Tax.
Founder guides on this
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
- RevenueDeferred revenue for SaaS startups, explainedAn annual prepayment is cash today and revenue over a year. How deferred revenue works under ASC 606, why it’s a liability, and the schedule behind it.
- StripeHow to reconcile Stripe payouts to your booksA Stripe payout is charges less fees, refunds and disputes, batched across days. How to book it gross, tie it to the bank, and keep revenue right.
More of the California guide
- AccountingAccounting and state tax in CaliforniaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- PayablesPayables and contractors in CaliforniaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in CaliforniaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in CaliforniaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in CaliforniaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.