Landlord Software Costs to Increase as California Imposes Sales Tax on Downloads

Landlord Software Costs to Increase as California Imposes Sales Tax on Downloads

California’s $351.7 billion state budget for the 2026-27 fiscal year was signed by Governor Newsom at the end of June. The budget includes the extension of sales tax to software and digital downloads starting on January 1, 2027, under Senate Bill 122. Senate Bill 122, among other things, expands sales and use tax to certain digital products beginning January 1, 2027, including electronically delivered pre-written software such as software-as-a-service (SaaS) regardless of how it is delivered. For rental housing providers, this means software products such as QuickBooks, AppFolio, Yardi, and various online tenant applicant screening services will be subject to sales tax and be more costly starting in 2027. Rental housing providers may wish to consider prepaying for effected software licenses before January 1, 2027, to avoid paying sales tax.

Examples of software that will now be subject to sales and use tax include any ‘digital product’ which is defined as pre-written computer software delivered on tangible storage media, transferred electronically or accessed remotely. The term ‘Transferred electronically’ means obtained by the purchaser through means other than tangible media that allow the purchaser to open, view, access, download, copy, possess, store, manipulate, update or otherwise use the digital product. Accordingly, the expanded sales tax would apply to software purchased from many traditional SaaS providers.