California just passed its largest budget in state history, and tucked inside the $351.7 billion package is a new tax that will reshape how every company in the state pays for software. Starting January 1, 2027, digital prewritten software and software-as-a-service products will be subject to California’s sales and use tax for the first time.
Here’s the part crypto investors should pay attention to: the legislation explicitly excludes cryptocurrencies and other digital assets from the new tax framework. In a state that serves as the nerve center for both Silicon Valley and a growing share of the US crypto industry, that carve-out is worth watching closely.
What the software tax actually looks like
The new tax, formalized in trailer bill SB/AB 122, applies a statewide base rate of 7.25% to transactions involving prewritten software and SaaS products. Local district taxes can stack on top of that, meaning the effective rate in some California jurisdictions will be higher.
Custom software gets a pass. So does anything classified as a cryptocurrency or digital asset. The tax is narrowly targeted at the kind of off-the-shelf and subscription-based software that has become the backbone of modern business operations.
