Will California Charge Sales Tax on My Digital Products in 2027?
Starting January 1, 2027, California applies sales and use tax to prewritten computer software and SaaS, including software accessed remotely. The CDTFA excludes eBooks, music, video, digital artwork, video games and cryptocurrency, and exempts custom software. So if you sell templates, presets or plugins that function like licensed software, you may need a seller's permit. If you sell courses, eBooks, art files or custom client work, you likely don't.
California signed a new sales tax on digital products into law this summer, and the headlines made it sound like everything you sell online is about to be taxed. That isn't what happened. Here's the actual shape of it.
What the law does
Senate Bill 122 (Stats. 2026, ch. 23) was signed June 29, 2026. The California Department of Tax and Fee Administration lays it out in Special Notice L-1036: beginning January 1, 2027, sales and use tax applies to prewritten computer software — whether it arrives on physical media, by download, or is accessed remotely. That last phrase is the one doing the work. Prewritten Software-as-a-Service is in.
What the law doesn't do
The CDTFA notice lists exclusions, and the list is longer than most coverage suggested. Not subject to the tax:
Digital books (eBooks)
Digital audio works — music, spoken recordings, ringtones
Digital audiovisual works — movies, video
Digital visual works — artwork
Digital video game products
Digital infrastructure (cloud platforms)
Digital assets (cryptocurrency)
Separately exempt: custom computer software, digital products representing a service rather than SaaS, products transferred with reproduction and distribution rights, and products purchased solely for use outside California.
So which side are you on?
The test isn't whether what you sell is digital. It's whether it functions as prewritten software.
A Lightroom preset pack, a Notion template sold as a product, a WordPress plugin, a font license — those sit closer to prewritten software and deserve a conversation before December. A course, an eBook, a stock photo set, a music track, a logo you designed for one client — those land in the excluded or exempt columns.
If you do land on the taxable side, the CDTFA says sellers must register for a seller's permit, file sales and use tax returns, and report and pay the tax beginning January 1, 2027.
The $5 million line, which is not what it sounds like
There's a $5 million figure in the notice and it is not a small-seller exemption. When a retailer's aggregate gross receipts from electronically transferred or remotely accessed digital products sold to one purchaser exceed $5 million in a calendar year, liability may shift from the seller to the buyer. If you're reading this, it almost certainly doesn't reach you.
What I'd do between now and January
Write down, in one sentence, what you sell and which column it falls in. Date the note. If you land on "taxable," ask about a seller's permit before the holidays instead of in January, when every accountant in this state is buried.
One caveat to carry: the CDTFA is still writing the implementing regulations, with final rules expected before year-end. The categories above come straight from the notice, but the fine print can still move.
General information, not tax advice for your specific situation.
