A decision map for indie & self-serve software sellers. Effective Jan 1, 2027.
Informational only — not legal advice. This tool encodes public
statutory text (SB 122) and professional summaries to help you self-answer a common question.
It is not a substitute for advice from a qualified tax professional or the CDTFA. California
regulations implementing SB 122 are still pending. See the rules sheet
for sources and limitations.
Step 1 · Product type
What kind of product do you sell?
SB 122 taxes prewritten software and SaaS; most other digital products stay exempt.
Step 1 · Product type
Taxable. Prewritten software (any delivery — download, physical
media, or remote access / SaaS) is subject to CA sales & use tax starting Jan 1, 2027.
Continue to Step 2 (nexus).
Bundled or serviced-heavy? If your offering mixes SaaS with
significant services, or is customized per buyer, the taxable/exempt split is a judgment call
— CDTFA guidance is pending. Flag this for a professional review.
Step 1 · Product type
Exempt. Custom software developed to a specific buyer's specification
(not for general or repeated sale) is not subject to the SB 122 tax. No CA collection on these
receipts. Keep documentation of why a rollout is "custom" — that's your audit defense.
Step 1 · Product type
Likely exempt. Digital infrastructure / IaaS (cloud where the customer
runs their own software) is excluded under SB 122's conditions. Note the "principally" test —
if your offering is mostly standardized software behind the compute, it may be reclassified.
Flag if borderline.
Step 1 · Product type
Exempt. Digital audio/visual works, digital books, digital video games,
digital assets (crypto, NFTs), and streamed media are explicitly excluded from the SB 122
base. No CA sales tax on these.
Step 1 · Product type
Depends on what it is. An AI-enabled product is taxable to the extent
the offering consists primarily of standardized software functionality (looks like SaaS);
it's likely exempt if it's primarily customized services or infrastructure. This is a borderline
branch — treat as CONDITIONALLY TAXABLE and get a
professional read before Jan 1.
This is the single most ambiguous area of SB 122. CDTFA regulations are
expected to refine the "primarily standardized software" test.
Step 2 · California nexus
Do you have nexus (a reason CA can require you to collect)?
You must collect CA tax only if you have EITHER economic or physical nexus.
Step 2 · Nexus
You have CA nexus. Continue to Step 3 (the $5M carve-out).
Step 2 · Nexus
No collection obligation for you. Below the $500K economic threshold
and no physical presence → you are not required to register/collect CA tax on CA sales.
(CA purchasers may still owe use tax on software they buy and use in CA.)
Step 3 · $5M self-remittance carve-out
How large are your CA digital-product gross receipts?
Above the threshold, the tax liability shifts from you (the seller) to the buyer.
From Jan 1, 2028, the test checks the current or
preceding calendar year (in 2027, just the year's receipts).
Step 3 · Carve-out
Liability shifts to the purchaser. Above $5M CA digital receipts, the
buyer self-assesses and remits the tax — you stop adding it to invoices. Confirm the carve-out
applies to your structure; this is a regime boundary.
Step 3 · Carve-out
You collect and remit. Under the $5M threshold, you charge and remit the
tax on CA-sourced sales. Continue to Step 4 (rate) and Step 5 (sourcing).
Step 4 · Combined rate
What rate applies?
7.25% state + district taxes — commonly ~10.25–10.75% in many
jurisdictions (some higher). Your exact rate depends on where the purchase is sourced
(Step 5). Look up the district rate for the destination address in the
CDTFA
rate finder — it's the authoritative per-address source.
Step 5 · Sourcing
Which address decides the rate?
SB 122 uses a destination-based, purchaser-address hierarchy (remote sales):
Scenario
Source to
In-person / at your CA place of business
That CA location
Remote — purchaser's known CA address (use in order)
Key lever: a subscription billed to a CA address is taxed; the
same subscription billed out of state generally is not. Clean, validated billing address data is
your biggest control — SB 122 does not let you allocate by where the software is used.
Sources: SB 122 statutory text (RTC §§6016/6016.1); professional summaries
(Avalara, Baker Tilly, Withum, TaxCloud). CDTFA regulations pending — treatment of borderline
bundles (custom/AI/infrastructure) may change. Informational only; not legal advice.
Generated 2026-09-21 · artifact · static file.
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one-page 2027 readiness checklist (nexus, classification, billing-address, sourcing) when the
rules finalize — plus updates as the Jan 1 deadline nears.
Sources: SB 122 statutory text (RTC §§6016/6016.1); professional summaries
(Avalara, Baker Tilly, Withum, TaxCloud). CDTFA regulations pending — treatment of borderline
bundles (custom/AI/infrastructure) may change. Informational only; not legal advice.
Generated 2026-09-21 · updated 2026-09-24. Privacy ·
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