Taxation.

Imposes sales and use tax on digital products (defined as prewritten computer software transferred on tangible storage media, electronically, or accessed remotely) effective January 1, 2027. Excludes digital assets (cryptocurrency), digital audio works, digital audiovisual works, digital books, cloud infrastructure services, digital video game products, and digital visual works.

Creates a $5 million annual gross receipts threshold: retailers whose digital product sales exceed this amount are relieved from collecting sales tax, and purchasers must self-assess and pay use tax directly to the department. The threshold adjusts every five years based on California CPI changes, rounded to the nearest $1 million.

Provides exemptions for: digital products purchased solely for use outside California or in interstate/foreign commerce; rights to reproduce or copy digital products for third-party distribution; and services provided in electronic form where human effort originated after customer request (but not cloud software access).

Prohibits local agencies (cities and counties) from entering agreements that result in payment, transfer, diversion, or rebate of local sales and use tax revenue from digital products transferred electronically or accessed remotely. Adds procedural requirements including 30-day web posting and 60-day certified mail notice to affected agencies.

Establishes place-of-sale rules for digital products: in-person sales are taxed at the seller's location; remote sales use a priority order of purchaser addresses (billing, shipping/delivery, payment instrument mailing, then general mailing address). If no California address is found, the sale is deemed outside the state.

Changes the business credit limit for taxable years beginning on or after January 1, 2027 from a flat $5,000,000 cap to 50% of total taxes imposed or $5,000,000, whichever is greater. This allows larger taxpayers to claim more in business credits.

Reduces the annual minimum franchise tax from $800 to $400 for limited partnerships, limited liability partnerships, and limited liability companies doing business in California, but only for their first taxable year. Applies to taxable years beginning on or after January 1, 2027 and before January 1, 2030.

Imposes a 100% tax on any settlement fund payment from the federal Anti-Weaponization Fund (established by the U.S. Department of Justice on May 18, 2026) or any subsequent fund, settlement, or agreement. Applies to taxable years beginning on or after January 1, 2026 and before January 1, 2030. The tax is not subject to reduction by deductions or credits.

Appropriates $750,000 from the General Fund to the California Department of Tax and Fee Administration for administering the new digital product sales and use tax provisions.

Voting requirement changed from simple majority to two-thirds of each house due to the inclusion of a tax increase. State-mandated local program designation changed from no to yes, triggering potential reimbursement obligations to local agencies.

Adds multiple new statutory definitions including 'digital product,' 'accessed remotely,' 'transferred electronically,' 'tangible storage media,' 'prewritten computer software,' 'digital asset,' 'digital audio work,' 'digital audiovisual work,' 'digital book,' 'digital infrastructure,' 'digital video game product,' and 'digital visual work.'