Sales Tax Update - July 2026

• Newly taxable: Pursuant to SB 122, effective 1/1/27, prewritten software becomes subject to California sales and use tax regardless of whether it is:
  • Delivered on physical media
  • Downloaded electronically
  • Accessed remotely
  • Provided as SaaS
• Classification: Covered digital products are treated as tangible personal property for sales and use tax purposes.
• Custom software: Software prepared to the special order of a customer remains exempt, including qualifying custom programs incorporating preexisting components.
• Other digital goods: The law is principally directed at prewritten software and SaaS. Many consumer digital products, such as streaming media, digital books, music, and similar content, are not broadly swept into the new tax.
• Sourcing: The legislation establishes sourcing rules for digital products.  Sellers will need reliable customer-location and usage information, especially for multistate licenses and remotely accessed software.
• Large transactions: Special rules may shift remittance responsibility from the seller to the purchaser in certain transactions exceeding $5 million in aggregate.
• Possible exemptions: Because covered software is classified as tangible personal property, existing California exemptions or partial exemptions, such as certain manufacturing and R&D provisions, may become relevant.
• Multiple Points of Use Allocation: Provides for creation of a prescribed CDTFA form to be issued by purchaser to software vendor, allowing for allocation to multiple states of use.
• Operational impact: Software companies should update product tax codes, billing systems, exemption handling, contract language, use-tax processes, and multistate allocation procedures before January 1, 2027.  Purchasers of software should ensure that their vendors are collecting the tax, or they should self-assess use tax on taxable purchases.

• Newly taxable at the state level: Pursuant to HB 26-1223, effective 1/1/27, software available for repeated sale or license becomes taxable regardless of delivery method, including:
  • Electronically downloaded software
  • Mobile applications
  • Remotely accessed software
  • Many SaaS arrangements
• Custom software exemption: Software developed for use by a particular customer remains exempt.
• Negotiated-license exemption: Software governed by a negotiable license agreement remains exempt.  Essentially, this means a custom license negotiated between the vendor and user regarding terms and fees, as opposed to a “click” type standard agreement.  The meaning and documentation of “negotiable” will be critical and may require additional guidance.
• Sourcing uncertainty: Businesses will need to determine where downloaded, mobile, and remotely accessed software is used.  Multilocation and multistate users may require allocation.
• Local-tax complication: Colorado home-rule jurisdictions retain autonomy regarding whether they impose sales tax on software, though many do so.  As such, transaction taxable by the state may receive different treatment in a home-rule city.  State-administered local jurisdictions may also require separate analysis.
• Multiple Points of Use Allocation: Provides for attestation by purchaser to software vendor of multiple states of use, allowing for allocation of use.
• Operational impact: Vendors should not assume a single Colorado taxability answer. Product mapping, customer-location data, contract review, and jurisdiction-level tax configuration will be essential.  Purchasers of software should ensure that their vendors are collecting the tax, or they should self-assess use tax on taxable purchases.

• Clarifies and Expressly Tax Pursuant to SB 126, Utah sales tax expressly applies to streaming or subscription access to:
  • Digital audiovisual works
  • Digital audio works
  • Digital books
  • Gaming services
• The law captures streaming-only access even when the customer receives no permanent download.
• Utah also codifies its position that prewritten software is taxable regardless of delivery method, including seller-hosted software.
• Amounts already subject to Utah’s multichannel video or audio service tax are excluded to prevent duplicative taxation.

• Pursuant to HB 757, effective 8/1/27, data-brokering services become taxable.
• The definition covers collecting, aggregating, and analyzing personal data for sale to third parties.
• Tax can apply regardless of whether charges are imposed per use, per user, per license, by subscription, or under another pricing method.
• The definition may reach businesses that monetize data incidentally rather than operating primarily as traditional data brokers.
• Services provided by Kentucky state and local governmental agencies are excluded.

• Effective 8/1/26, the threshold changes
  • From: 100,000 in sales OR 200 transactions
  • To: $100,000 in sales only
• The change applies to remote retailers and marketplace providers.
• Sales counted toward the threshold include tangible personal property, digital property, and services delivered or provided to Kentucky purchasers.
• Practical effect: Small sellers with more than 200 low-dollar Kentucky transactions may fall out of nexus, provided they remain below $100,000 and have no other nexus-creating activity.

• States are continuing to eliminate the 200-transaction test and rely on revenue-only thresholds.
• This generally reduces burdens for high-volume, low-dollar sellers.
• It does not necessarily reduce exposure for software companies, because states differ significantly in whether the threshold includes:
  • Taxable sales only
  • Gross sales
  • Exempt sales
  • Resale transactions
  • SaaS and digital products
  • Nontaxable services
  • Marketplace sales
• As of April 2026, transaction-count tests remained in a number of jurisdictions, including Arkansas, Georgia, Hawaii, Maryland, Michigan, Minnesota, Nebraska, Nevada, New Jersey, Ohio, Rhode Island, Vermont, Virginia, West Virginia, Washington, D.C., and Puerto Rico. Connecticut retains the more restrictive formulation of $100,000 and 200 transactions.

The most consequential upcoming changes are California and Colorado taxing remotely accessed prewritten software beginning January 1, 2027, Utah’s immediate expansion to streaming and seller-hosted software, and Kentucky’s August 1, 2026 changes affecting both data-brokering taxability and economic nexus.