California could tax software and SaaS in 2027

I don't know if our EU, AU/NZ, UK, CN, KR, JP and IN friends in the forum here would also be (or already are) affected by taxes on digital software downloads (excludes music, films, books, etc), but here we go.

In fairness, this appears to be a mix of an update to the tax law (I remember paying sales tax when I would go buy boxed software products, from Logic Pro to drum and piano sample libraries, CD-ROMs, etc.), there's no reason why those same products should be tax exempt when delivered digitally.

In fact, though I've not bought any new plugins in years now, I seem to remember my last purchases did already include CA sales tax.

Anyway - let us know if you guys overseas, or out of state, are affected by online sales taxes - or not - and/or if you found a way to circumvent it (currently, they go by the zip/postal code of your CC billing address).

 

If you buy software, the tax is already included in the price... so what am I missing here? What exactly they want to tax? VLC downloads (free)? As an example. That would be... really dumb, to say the least. And what's the reasoning behind it? That it uses energy to download a program? I'm sure I'm missing something or your info is too blurry. Sometimes it's hard to understand how tech-idiots / politicians think.

 

In the EU and the UK, digital products (SaaS, downloads, plugins) have been fully subject to VAT since 2015.

Regulation: The so-called MOSS (Mini One-Stop-Shop) procedure—now known as OSS—applies. When selling to an end consumer in the EU, a US provider (such as Plugin Alliance, Apple, or Avid) must add and remit the VAT applicable in the buyer's home country (e.g., 19% in Germany, 20% in Austria).

Exception: If you run a business and provide a valid VAT identification number (VAT ID), the reverse-charge mechanism applies, and the invoice is issued at the net price.

 

Last edited: Jun 27, 2026 at 4:37 PM

I'm not sure what you mean by "my info" or "too blurry," but if you mean the article linked above is unclear, I can only agree with you.

Nevertheless, I took a few minutes to read through several other articles referenced in the one article linked above, and to keep it simple, it's looking to me as though CA is looking to update, or if you prefer, bring up to date (i.e., modernize) its tax laws to bring its code into the digital age.

For us musicians and producers especially (film composers too), the digital age means subscription. Some of us buy (pay for software), some never do, and some of us (no one I know, but perhaps this is a generational thing) rent it all. I hear Pro Tools is a subscription service these days, as are Waves, and Slate, even (some or all - unclear to me) UAD plugins. Heck, even Logic, Mainstage, & their MacOS brethren are available on subscription as of earlier this year.

For our fashion or general business photographer friends and girlfriends (mine for instance), this is nothing new - Adobe got them shackled years ago.

I reckon that the spirit of this CA tax law adjustment (aka SB-122) is to ensure 1) more revenue for CA's coffers (hello), and 2) that whether you buy your software boxed (as one did in the past, and still can, at GC, Best Buy or Staples for instance), online, or pay for it as a service, appropriate tax is collected.

I believe - but was asking our friends who live overseas to confirm if - that's been the case in the EU and UK, and perhaps the Asia/Pacific region as well (if memory serves, I've had to pay VAT whenever I bought something in the UK, DE, DK, FR, and NL).

Hope this short clarification helps.

 

Other states: More than half of U.S. states already tax SaaS and digital software downloads (e.g., New York, Texas, Washington).

California actually lagged behind the rest of the country regarding purely digital goods (those without physical media). If you paid taxes there in the past, it was often because the vendor was based in California or the transaction was "mixed" (e.g., involving hardware). The planned legislative change simply closes the gap regarding the purely digital economy.

 

It's unclear because you said the download is subject to tax. If you download something without making a purchase, there's nothing to tax. That's not how taxes work. It's not the download that is taxed, but the money transfer.

 

I have to admit with taxing, it does seem very unusual that any person who is probably already paying the included tax in the purchase and if International, also a conversion fee, is also charged for simply buying something that is possibly already taxed? Very strange.

 

why would taxes be inlcuded when currently there is no tax in california? that does not make sense.

and who´s fault is that if you do not understand them ?

to the original question:

here in europe a software download or a licensing contract via internet is considered to be a service.

so you have to pay 17%-27% VAT i.e. sales tax, depending on your country.

for example if i sell software while i reside in germany, i have <25k revenue free, (eventually <100k free from year 2 on. ("small business")) as soon as i sell more than that, i need to remit 19% sales tax on everything - and i have to state that in the invoices i am writing.

if i am selling more than 20k revenue to french customers i have to pay those taxes there and no longer here in germany (and there it is 20%)

that is only very roughly how it works, and there are exceptions to it.

 

No misconception but I am grateful you explained it. Seems like a lot of people probably won't like it.

 

In fact, in our good US of A, it is not. In the US, for goods and services, our sales tax is tallied at the conclusion/payment of the transaction (unlike the EU/UK/AU/NZ VAT).

This is valid for most purchases of goods and services, for instance: dinner, alcoholic beverages, clothes, shoes, furniture, automobiles - even houses. Tax is not included in the sticker price.

There are exceptions: prices of gasoline (petrol in the UK) are tax inclusive usually (the price advertised is the price at the pump so when you stop pumping at $10, you pay exactly $10, not $10 + tax). This is, I would imagine, for practical reasons.

Another exception or tax exemption would be raw and unprepared foods (fruits, vegetables, dead animal flesh, etc). Such items are not taxed, nor are most prepared foods at a supermarket (e.g., bakery products, soups, sandwiches, etc), as long as they are not consumed on the premises.

To circle back to the original topic: this tax code update is intended to catch up the CA Treasury with evolved shopping and purchasing trends: if musician A pays 9.75% tax buying Omnisphere Boxed Software at Guitar Center, then musician B who buys the exact same software online, and downloads it directly should and will also pay the exact same amount of 9.75% tax of the sticker price.

If the software is free, e.g., VLC or IINA, there is no purchase. No purchase = no tax.

The amount of energy spent in the purchase (driving, parking, walking) or not (downloading), is inconsequential to the CA Treasury.


What I personally found interesting, and I had assumed my fellow musicians would as well, is that this CA law is purporting to consider all software subscriptions as services, on the same footing as your internet or phone bill - and therefore 100% taxable likewise.

This means that those of us who have an iCloud subscription, an Apple Music subscription, a paid Mega or Rapidgator account, and of course, a Plugin-Alliance, Pro Tools, Slate, UAD, or Waves subscription plan, will get taxed accordingly, as though we were buying or had bought the software outright. Every monthly payment will be taxed as a sale.

I apologize for not making it clearer to our European and Asian friends herein that US sales tax is not included in the advertised sticker price, and that said tax % is unrelated to the energy expenditure or consumption required to complete said purchase, online or IRL.

 

WOW - This will definitely only add to the growing unpopularity of the subscription models if they let it happen.

 

What are you even talking about?! what does compression have to do with reading?!

 

Edit:
I was addressing what you wrote in your title, the content of your post doesn't narrow it down any further and completely misses to communicate to non-americans how taxes are assessed in california. Be that as it may, regarding your closing question: At least in the EU, circumventing tax payments would be a crime called tax evasion. And yes, in the EU it's normal to pay taxes when buying or renting something.

 

That's one reason I always used the magic.

Best might be to leave the USA.