TooziDoes California's SaaS tax apply to me?
From January 1, 2027, California taxes prewritten software and SaaS sold to customers with a California address. Five questions tell you whether that is you, whether a platform already handles it, and what to do before January.
From January 1, 2027, prewritten software is taxable in California however it is delivered, and you bill California customers yourself. Charge 7.25% state tax plus the district rate at each customer's address, up to about 10.75%.
- Register with CDTFA for a seller's permit before your first 2027 sale.
- Collect a billing address on every sale; the rate is set by the customer's address, not yours.
- File the CDTFA-401 with Schedule A. Your first return with software sales is due April 30, 2027.
Based on SB 122 and CDTFA's proposed regulations, which are still being finalized. Not legal advice. The full picture, including rates and the first return, is on the California SaaS tax page.
What SB 122 taxes
Prewritten software, however it is delivered: SaaS subscriptions, web apps, mobile apps, downloads, plugins, extensions, paid APIs and AI tools sold to many customers, even when the output is personalized. The old rule only taxed software on a disk; the new one does not care how it arrives.
The rate is the state 7.25% plus the district taxes at the customer's address, which tops out around 10.75% in some cities. It is set by where the customer is, not where you are.
What stays exempt
Custom software written to one customer's order. Courses, ebooks, templates and Notion-style kits. Music, video, streaming and games. Hosting, cloud compute and storage. Consulting, design, coaching and done-for-you work. If you sell a bundle, separately state the exempt part on the invoice so the whole charge is not taxed.
Who collects: you or the platform
Paddle, Lemon Squeezy, Gumroad, the App Store and Google Play are merchants of record. They charge the tax at the customer's address and file it; those sales never touch your return. Stripe, your own checkout and invoices you send are not. If you bill through Stripe, the tax is yours to collect and file.
Out-of-state sellers only have to register once California sales pass $500,000 in the current or prior calendar year. California-based sellers register regardless of size.
What to do before January
Start capturing a billing address on every sale now, so you can tell California customers from the rest on January 1. Put service dates on annual plans, because a plan sold in 2026 that runs into 2027 is taxable for the 2027 share. Register with CDTFA before the first taxable sale, and plan for the first return on April 30, 2027.
Toozi tracks the right data from day one by text, looks up the exact district rate per customer, and builds the CDTFA-401 with Schedule A when the return is due.
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Questions
When does California start taxing SaaS?
January 1, 2027. Sales before that date are not taxable under the new rule, except the 2027 share of annual plans that straddle the date.
I am not in California. Does this apply to me?
Only if you have California customers and your California sales pass $500,000 in the current or prior calendar year. Below that threshold there is nothing to register or collect. Above it, you collect on every California sale from then on.
I sell through Stripe. Does Stripe collect it?
No. Stripe is a payment processor, not a merchant of record. Stripe Tax can calculate and collect if you turn it on, but registering and filing with CDTFA is still yours.
Do I charge tax on an annual plan sold in December 2026?
On the part of the term after January 1, 2027, prorated by the day. A 12-month plan sold December 1, 2026 is about 11/12 taxable. Keep service dates on every invoice.
Is the rate the same everywhere in California?
No. The state rate is 7.25% and district taxes at the customer's address add up to about 3.5 points more. CDTFA publishes a free rate-by-address lookup, which Toozi uses per customer.
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