Gov. Gavin Newsom is going afterSilicon Valleywith a sweeping proposal to expand the state’s sales tax into cloud software, AI platforms and digital applications — a move projected to generate more than $1 billion in its first year and reshape how the digital economy is taxed.
The plan does not create a new standalone surcharge, it broadens California’s existingsales tax systemso it applies more consistently to software products sold online.
The state’sbase sales tax rateis 7.25%, with local taxes able to push the total higher depending on where a buyer is located.
At the center of the proposal is “prewritten computer software” and Software-as-a-Service products, particularly enterprise tools used by businesses and large organizations.
The administration has explicitly excluded digital entertainment streaming services such as Netflix and Spotify from the new tax rules.
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Newsom has framed the effort as closing a fairness gap in the tax code. He pointed to a discrepancy in how software is taxed depending on how it is purchased.
“I’m at Best Buy often, and I’m paying sales tax on a lot of this pre-written software, and then I find out all my friends that aren’t near a Best Buy, they’re downloading it and they’re not paying sales tax. Well, how is that fair?” Newsom said during Friday’s press confrence.
The governor’s office says the majority of the impact will fall on business-to-business software transactions, which account for roughly 75% of the projected economic effect.
Still, some consumer-facing subscriptions could see higher costs if the proposal becomes law.
Source: California Post – Breaking California News, Photos & Videos
