Taxation.
What changed between versions
Expands the definition of 'tangible personal property' in the Sales and Use Tax Law to include 'digital product' (prewritten computer software transferred on tangible storage media, transferred electronically, or accessed remotely) and associated copyright or patent interests, making these items subject to sales and use tax effective January 1, 2027.
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, for 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.
Changes the voting requirement from a simple majority to two-thirds of each house of the Legislature, because the bill includes a provision that results in a taxpayer paying a higher tax under Article XIII A of the California Constitution. Also changes the state-mandated local program designation from 'no' to 'yes.'
Adds new definitions for 'digital product,' 'accessed remotely,' 'transferred electronically,' 'tangible storage media,' 'prewritten computer software,' and exclusions including digital assets, digital audio works, digital audiovisual works, digital books, digital infrastructure, digital video game products, and digital visual works.
Establishes sourcing rules for digital products: in-person sales are sourced to the seller's place of business; remote sales are sourced to the purchaser's known address in California (billing address takes priority over shipping, payment instrument mailing, or general mailing address); if no California address is available, 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 million cap to 50% of total taxes imposed or $5 million, whichever is greater, effectively allowing larger businesses to claim more in credits.
Creates a threshold relief provision: retailers are relieved from collecting sales tax on digital products transferred electronically or accessed remotely when the purchaser's aggregate purchases exceed $5 million in the current calendar year (or current or preceding year starting 2028). The threshold is indexed to CPI every five years beginning October 1, 2031. The purchaser must then self-assess and pay use tax directly to CDTFA.
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.
Reduces the annual minimum franchise tax for limited partnerships, limited liability partnerships, and limited liability companies from $800 to $400 for the entity's first taxable year, applicable to taxable years beginning on or after January 1, 2027 and before January 1, 2030. Requires Franchise Tax Board annual reports to the Legislature.
Prohibits local agencies from entering any agreement that would result in the payment, transfer, diversion, or rebate of sales and use tax revenue imposed on digital products transferred electronically or accessed remotely. Violations may be subject to redistribution by CDTFA.