California software prices are going up on 1-1-27!

It seems like California just delights in making it more difficult and more expensive for companies and other organizations to stay in California.  This new one is going to really sting users of software, which means pretty much EVERYONE.

Governor Newsom signed into law Senate Bill 122 (SB122) on June 29, 2026.  What this does is repeal the sales tax exemption downloadable software has enjoyed for many years.  This bill goes into effect 1-1-27.  Here's a link to an opinion of the new law: www.hklaw.com/en/insights/publications/2026/07/the-partys-over-after-more-than-three-decades-california

This will have an immediate effect on all users of IT software.  ALL SOFTWARE will now be taxed, at rates between 7.25% (the lowest sales tax rate in CA) and 11.25% (the highest sales tax rate in CA).  There's no getting around it; if you use software, beginning 1-1-27 it's going to be taxed, and you're going to have to pay it.

Without debating the merits of taxing or not taxing software, you have to now factor an increase into your budgeting for the next fiscal year.  It's going to increase your expenses by the sales tax rate on whatever software you pay for.  If you thought that your costs for Public Cloud and Gen AI were increasing at a fast rate, now you get to add this new tax on top of that.

What can you do to avoid this?  Very little, unfortunately.  The only way I can think of is to  acquire new software or renew existing software before the end of 2026 for as long a period as you can.  The tax is charged on invoices in 2027, and if you do the deal in 2026, you should be safe.  I'm not an accountant, so please don't treat this as tax advice.

Regardless, your costs are going up.  Sorry to be the bearer of bad news, but let's see how we can help you before 1-1-27.