California Governor Gavin Newsom proposed a 7.25% sales tax on cloud-based and digital pre-written software. This measure appears in his revised state budget to modernize the tax code. The proposal aligns tax rates for downloaded software with those currently applied to physical media.
The tax could generate $1.1 billion in its first year. Annual revenue for state and local governments may reach $2 billion in subsequent years.
The state legislature must approve the measure before it takes effect. The tax would impact major vendors including Microsoft, Salesforce, Oracle, and Adobe. Approximately 24 other states already tax software-as-a-service.