Bill Text: CA SB122 | 2025-2026 | Regular Session | Chaptered

California Senate Bill 122

Bill Title: Taxation.

Sponsorship: Committee Bill

Status: (Passed) 2026-06-29 - Chaptered by Secretary of State. Chapter 23, Statutes of 2026. [SB122 Detail]

Download: California-2025-SB122-Chaptered.html

Senate Bill No. 122

CHAPTER 23

An act to amend Section 53084.5 of the Government Code, to amend Sections 6006, 6009, 6010, 6010.5, 6010.9, 6016, 6406, 7051.3, 17039.4, 17039.5, 17935, 17941, 17948, 19533, 23036.4, and 23036.5 of, to add Sections 6009.5, 6010.5.1, 6016.1, 6016.2, 6052, 6054, 6201.55, 6362.4, 6372, 6372.1, 7202.1, 7254, 17039.6, and 23036.6 to, and to add and repeal Part 10.8 (commencing with Section 22000) of Division 2 of, the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor, to take effect immediately, bill related to the budget.

[ Approved by Governor June 29, 2026. Filed with Secretary of State June 29, 2026. ]

LEGISLATIVE COUNSEL'S DIGEST

SB 122, Committee on Budget and Fiscal Review. Taxation.

(1) Existing state sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state of, or on the storage, use, or other consumption in this state of, tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law (SUT) defines “tangible personal property” to mean personal property that may be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses. Existing law punishes various violations of the SUT as crimes.

The Bradley-Burns Uniform Local Sales and Use Tax Law (Bradley-Burns) authorizes counties and cities to impose local sales and use taxes in conformity with the SUT, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the SUT. Amendments to the SUT are automatically incorporated into the local tax laws.

This bill would define “tangible personal property” to additionally mean a digital product and any copyright or patent interests associated therewith for the purposes of the application of the SUT, as prescribed. The bill would define “digital product” to mean, except as provided, prewritten computer software transferred on tangible storage media, transferred electronically, or accessed remotely. The bill would also make various conforming changes. By expanding the scope of violating the SUT, this bill would impose a state-mandated local program.

This bill would prohibit a purchaser or retailer of a digital product that is transferred electronically or accessed remotely from entering into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of any tax revenue resulting from the imposition of a sales and use tax under Bradley-Burns imposed on the sale or purchase of a digital product that is transferred electronically or accessed remotely.

This bill would make an appropriation of $750,000 from the General Fund to the California Department of Tax and Fee Administration for the purpose of administering these sales and use tax provisions.

(2) The Personal Income Tax Law and the Corporation Tax Law authorize various credits against the taxes imposed by those laws. Existing law, for taxable years beginning on or after January 1, 2024, and before January 1, 2027, limits the total tax reduction by all business credits, as defined, to $5,000,000 per taxable year, except as specified.

This bill would extend this limitation through taxable years beginning before January 1, 2030. The bill would also create additional exceptions to this limitation for certain refundable credits or refundable amounts. The bill would, for taxable years beginning on or after January 1, 2030, similarly apply a business credit limit of 70% of the total taxes imposed or $5,000,000, whichever is greater, except as specified.

Existing law, for taxable years beginning on or after January 1, 2024, and before January 1, 2027, allows a taxpayer to make an irrevocable election to receive an annual refundable credit amount, beginning the 3rd taxable year after the election is made, equal to 20% of the qualified credits that would have otherwise been available to the taxpayer but for the $5,000,000 limitation. Existing law requires the annual refundable credit amount to be allowed as a credit for the taxable year, as specified, and requires the balance, if any, to be paid from the Tax Relief and Refund Account, a continuously appropriated fund, to the taxpayer.

This bill would extend the provisions relating to elections to receive an annual refundable credit amount through taxable years beginning before January 1, 2030. By extending the operation of a continuous appropriation, this bill would make an appropriation.

(3) Existing law imposes an annual minimum franchise tax of $800, except as provided, on every corporation incorporated in this state, qualified to transact intrastate business in this state, or doing business in this state, and an annual tax in an amount equal to the minimum franchise tax, except as provided, on every limited partnership, limited liability partnership, and limited liability company doing business in this state, as specified.

This bill, for taxable years beginning on or after January 1, 2027, and before January 1, 2030, would reduce the amount of the annual tax imposed on a limited partnership, limited liability partnership, and limited liability company doing business in this state from $800 to $400 for the corporation’s first taxable year. The bill would require the Franchise Tax Board to submit an annual report to the Legislature regarding the reduction of the annual tax for these corporations, as provided.

(4) The Personal Income Tax Law and Corporation Tax Law impose taxes according to or measured by net income of a taxpayer subject to those laws, including residents of the state, at specified rates. Existing law requires the Franchise Tax Board to administer the Personal Income Tax Law and the Corporation Tax Law pursuant to existing law, the violation of which is a crime. The United States Department of Justice announced on May 18, 2026, the establishment of the federal Anti-Weaponization Fund for the purpose of providing a systematic process to hear and redress claims of persons who suffered weaponization and lawfare.

This bill would, for taxable years beginning on or after January 1, 2026, and before January 1, 2030, impose a tax on any settlement fund payment from the federal Anti-Weaponization Fund, or any subsequent fund, settlement, or agreement, as provided, at a rate of 100%. The bill would provide that the taxes imposed by these provisions would not be subject to reduction due to deductions or credits, as provided. The bill would require the Franchise Tax Board to administer this tax consistent with existing law relating to the administration of the Personal Income Tax Law and the Corporation Tax Law. By expanding the scope of crimes relating to those provisions, this bill would impose a state-mandated local program.

(5) This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of ²/₃ of the membership of each house of the Legislature.

(6) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

(7) This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

Vote: 2/3 Appropriation: YES Fiscal Committee: YES Local Program: YES

The people of the State of California do enact as follows:

SECTION 1.

Section 53084.5 of the Government Code is amended to read:

53084.5.

(a) On or after January 1, 2016, a local agency shall not enter into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of any tax revenue resulting from the imposition of a sales and use tax under the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200) of Division 2 of the Revenue and Taxation Code) to any person for any purpose when both of the following apply:

(1) The agreement results in a reduction in the amount of revenue under the Bradley-Burns Uniform Local Sales and Use Tax Law that, in the absence of the agreement, would be received by another local agency.

(2) The retailer continues to maintain a physical presence within the territorial jurisdiction of that other local agency.

(b) (1) A local agency entering into an agreement that results in a reduction of the amount of revenue under the Bradley-Burns Uniform Local Sales and Use Tax Law that, in the absence of the agreement, would be received by another local agency shall post the proposed agreement on its internet website for at least 30 days prior to ratification or approval of that agreement by its governing body.

(2) A local agency entering into an agreement that results in a reduction of the amount of revenue under the Bradley-Burns Uniform Local Sales and Use Tax Law that, in the absence of the agreement, would be received by another local agency shall notify the other local agency by certified mail addressed to the attention of the chief executive of that other local agency at least 60 days prior to ratification or approval of that agreement by its governing body.

(3) A local agency shall post any agreement on its internet website it has entered into that results in a reduction of the amount of revenue under the Bradley-Burns Uniform Local Sales and Use Tax Law that, in the absence of the agreement, would be received by another local agency, including any agreements entered into prior to January 1, 2016, that are still in effect on and after that date.

(c) (1) A local agency shall not enter into any form of agreement that would result, directly or indirectly, in the payment, transfer, diversion, or rebate of any tax revenue resulting from the imposition of a sales and use tax under the Bradley-Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200) of Division 2 of the Revenue and Taxation Code) imposed on the sale or purchase of a digital product that is transferred electronically or accessed remotely.

(2) A payment, transfer, diversion, or rebate of any tax revenue pursuant to an agreement described in paragraph (1) may be subject to redistribution by the California Department of Tax and Fee Administration pursuant to Section 7209 of the Revenue and Taxation Code.

(d) For the purposes of this section:

(1) “Accessed remotely” has the same meaning as defined in Section 6016.2 of the Revenue and Taxation Code.

(2) “Digital product” has the same meaning as defined in Section 6016.1 of the Revenue and Taxation Code.

(3) “Local agency” means a chartered or general law city, a chartered or general law county, or a city and county, of this state.

(4) “Person” has the same meaning as defined in Section 6005 of the Revenue and Taxation Code.

(5) “Physical presence” means the lease or ownership of any real property for the purpose of carrying on business operations.

(6) “Purchase” has the same meaning as defined in Section 6010 of the Revenue and Taxation Code.

(7) “Retailer” has the same meaning as defined in Section 6015 of the Revenue and Taxation Code.

(8) “Sale” has the same meaning as defined in Section 6006 of the Revenue and Taxation Code.

(9) “Transferred electronically” has the same meaning as defined in Section 6016.2 of the Revenue and Taxation Code.

(e) Except as provided in subdivision (c), this section shall not apply to any agreement by a local agency to pay or rebate any use tax revenue resulting from the imposition of a use tax under the Bradley-Burns Uniform Local Sales and Use Tax Law relating to a use tax direct payment permit issued under Section 7051.3 of the Revenue and Taxation Code.

(f) This section shall not be interpreted to limit the ability of a local agency to contract with or otherwise enter into an agreement pursuant to subdivision (b) of Section 7056 of the Revenue and Taxation Code.

(g) This section shall not apply to any mutual tax revenue sharing agreement between local agencies to pay, transfer, or divert tax revenues that would be received by a local agency resulting from the imposition of a sales and use tax under the Bradley-Burns Uniform Local Sales and Use Tax Law to another local agency, and where the agreement would not result, directly or indirectly, in the payment, transfer, diversion, or rebate of those tax revenues to a retailer.

(h) The amendments to this section by the act adding this subdivision shall become operative immediately upon enactment.

SEC. 2.

Section 6006 of the Revenue and Taxation Code is amended to read:

6006.

“Sale” means and includes:

(a) Any transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration. “Transfer of possession” includes only transactions found by the department to be in lieu of a transfer of title, exchange, or barter.

(b) The producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing, or imprinting.

(c) The furnishing and distributing of tangible personal property for a consideration by social clubs and fraternal organizations to their members or others.

(d) The furnishing, preparing, or serving for a consideration of food, meals, or drinks.

(e) A transaction whereby the possession of property is transferred but the seller retains the title as security for the payment of the price.

(f) A transfer for a consideration of the title or possession of tangible personal property which has been produced, fabricated, or printed to the special order of the customer, or of any publication.

(g) Any lease of tangible personal property in any manner or by any means whatsoever, for a consideration, except a lease of:

(1) Motion pictures or animated motion pictures, including television, films, and tapes.

(2) Linen supplies and similar articles when an essential part of the lease agreement is the furnishing of the recurring service of laundering or cleaning the articles.

(3) Household furnishings with a lease of the living quarters in which they are to be used.

(4) Mobile transportation equipment for use in transportation of persons or property as defined in Section 6023.

(5) Tangible personal property leased in substantially the same form as acquired by the lessor or leased in substantially the same form as acquired by a transferor, as to which the lessor or transferor has paid sales tax reimbursement or has paid use tax measured by the purchase price of the property. For purposes of this paragraph, “transferor” shall mean the following:

(A) A person from whom the lessor acquired the property in a transaction described in subdivision (b) of Section 6006.5.

(B) A decedent from whom the lessor acquired the property by will or the laws of succession.

(6) A mobilehome, as defined in Sections 18008 and 18211 of the Health and Safety Code, other than a mobilehome originally sold new prior to July 1, 1980, and not subject to local property taxation.

(7) Paragraphs (1) and (5) and Section 6094.1 shall not apply to rentals or leases of video cassettes, video tapes, and video discs for private use under which the lessee or renter does not obtain or acquire the right to license, broadcast, exhibit, or reproduce the video cassette, video tape, or video disc.

(h) Any transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means, of a digital product transferred on tangible storage media for a consideration.

(i) Any permanent or temporary transfer of the right, in any manner or by any means whatsoever, to open, view, access, download, copy, update, possess, store, manipulate, or otherwise use a digital product transferred electronically or accessed remotely for a consideration, beginning January 1, 2027.

(j) The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2027.

SEC. 3.

Section 6009 of the Revenue and Taxation Code is amended to read:

6009.

(a) “Use” includes the exercise of any right or power over tangible personal property incident to the ownership of that property, and also includes the possession of, or the exercise of any right or power over, tangible personal property by a lessee under a lease, except that it does not include the sale of that property in the regular course of business.

(b) For purposes of subdivision (a), the exercise of any right or power over tangible personal property incident to the ownership of that property includes opening, viewing, accessing, downloading, copying, updating, possessing, storing, or manipulating a digital product transferred electronically or accessed remotely.

SEC. 4.

Section 6009.5 is added to the Revenue and Taxation Code, to read:

6009.5.

(a) For purposes of the use tax liability imposed pursuant to Sections 6052 and 6201.55, “storage” and “use” do not include the keeping, retaining, or exercising of any right or power over a digital product for the purpose of installing or deploying the digital product for use thereafter solely outside the state.

(b) This section shall become operative on January 1, 2027.

SEC. 5.

Section 6010 of the Revenue and Taxation Code is amended to read:

6010.

“Purchase” means and includes:

(b) When performed outside this state or when the customer gives a resale certificate pursuant to Article 3 (commencing with Section 6091) of Chapter 2, the producing, fabricating, processing, printing, or imprinting of tangible personal property for a consideration for consumers who furnish either directly or indirectly the materials used in the producing, fabricating, processing, printing, or imprinting.

(c) A transaction whereby the possession of property is transferred but the seller retains the title as security for the payment of the price.

(d) A transfer for a consideration of tangible personal property which has been produced, fabricated, or printed to the special order of the customer, or of any publication.

(e) Any lease of tangible personal property in any manner or by any means whatsoever, for consideration, except a lease of:

(1) Motion pictures or animated motion pictures, including television, films, and tapes.

(2) Linen supplies and similar articles when an essential part of the lease agreement is the furnishing of the recurring service of laundering or cleaning the articles.

(3) Household furnishings with a lease of the living quarters in which they are to be used.

(4) Mobile transportation equipment for use in transportation of persons or property as defined in Section 6023.

(A) A person from whom the lessor acquired the property in a transaction described in subdivision (b) of Section 6006.5.

(B) A decedent from whom the lessor acquired the property by will or the laws of succession.

(6) A mobilehome, as defined in Sections 18008 and 18211 of the Health and Safety Code, other than a mobilehome originally sold new prior to July 1, 1980, and not subject to local property taxation.

(f) Any transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of a digital product transferred on tangible storage media for a consideration.

(g) Any permanent or temporary transfer of the right, in any manner or by any means whatsoever, to open, view, access, download, copy, update, possess, store, manipulate, or otherwise use a digital product transferred electronically or accessed remotely for a consideration, beginning January 1, 2027.

(h) The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2027.

SEC. 6.

Section 6010.5 of the Revenue and Taxation Code is amended to read:

6010.5.

(a) Subject to subdivision (b), for the purposes of this part, the place of the sale or purchase of tangible personal property is the place where the property is physically located at the time the act constituting the sale or purchase, as defined in this part, takes place.

(b) (1) For a digital product transferred on tangible storage media, the place of the sale or purchase of that digital product shall be the place where the tangible storage media is physically located at the time the act constituting the sale or purchase takes place.

(2) If the sale or purchase of a digital product that is not transferred on tangible storage media is an in-person sale or purchase at a location of the seller for which the seller is required to hold a seller’s permit pursuant to Section 6066, the place of the sale or purchase of the digital product transferred electronically or accessed remotely shall be the seller’s place of business in this state where the in-person sale or purchase occurred.

(3) (A) If the sale or purchase of a digital product that is not transferred on tangible storage media is not an in-person sale or purchase, the place of the sale or purchase of a digital product transferred electronically or accessed remotely shall be deemed to be the purchaser’s known address in this state shown in the seller’s records maintained in good faith in the ordinary course of business.

(B) If the purchaser provided more than one address to the seller during the consummation of the sale or purchase, the purchaser’s known address shall be determined from those addresses in this state in the following order of priority:

(i) The purchaser’s billing address.

(ii) The purchaser’s shipping or delivery address.

(iii) The mailing address associated with the purchaser’s payment instrument.

(iv) The purchaser’s mailing address.

(C) If a purchaser does not provide an address to the seller during the consummation of the sale or purchase, the purchaser’s known address in this state shall be determined from the addresses in this state the purchaser previously provided to the seller in the following order of priority:

(i) The purchaser’s most recent billing address.

(ii) The purchaser’s most recent shipping or delivery address.

(iii) The purchaser’s most recent mailing address associated with the purchaser’s payment instrument.

(iv) The purchaser’s most recent mailing address.

(4) If neither paragraph (2) or (3) apply, the place of the sale or purchase of a digital product transferred electronically or accessed remotely shall be deemed to be outside of this state.

SEC. 7.

Section 6010.5.1 is added to the Revenue and Taxation Code, to read:

6010.5.1.

(a) The place of use of a digital product shall be the place where any right or power is exercised over the digital product. The right or power to remotely access a digital product is exercised at the place where the person accessing the digital product is located.

(b) It shall be presumed that a digital product that was purchased outside of this state, as determined pursuant to Section 6010.5, and used in this state within 90 days from the date of sale or purchase was purchased for storage, use, or other consumption in this state.

SEC. 8.

Section 6010.9 of the Revenue and Taxation Code is amended to read:

6010.9.

(a) “Sale” and “purchase,” for the purposes of this part, do not include the design, development, writing, translation, fabrication, lease, or transfer for a consideration of title or possession, of custom computer software, other than a basic operational program, either in the form of written procedures or in the form of tangible storage media on which, or in which, the custom computer software is recorded, or any required documentation or manuals designed to facilitate the use of the custom computer software so transferred.

(b) As used in this section:

(1) “Basic operational program” has the meaning defined in Section 995.2.

(2) “Computer” means an electronic device, including word processing equipment, that is programmable and includes a processor (CPU) and internal memory.

(3) “Computer software” means a set of coded instructions designed to cause a computer or automatic data processing equipment to perform a task.

(4) (A) “Custom computer software” means computer software prepared to the special order of a single customer and includes those services represented by separately stated charges for modifications to existing prewritten computer software that are prepared to the special order of the customer.

(B) “Custom computer software” does not include prewritten computer software that is held or existing for general or repeated sale or lease, even if the prewritten computer software was initially developed on a custom basis or for in-house use. Modification to existing prewritten computer software to meet the customer’s needs is custom computer software only to the extent of the modification.

SEC. 9.

Section 6016 of the Revenue and Taxation Code is amended to read:

6016.

(a) “Tangible personal property” means either of the following:

(1) Personal property that can be seen, weighed, measured, felt, touched, or is in any other manner perceptible to the senses.

(2) A digital product and any copyright or patent interests associated therewith.

(b) The amendments made this section by the act adding this subdivision shall become operative on January 1, 2027.

SEC. 10.

Section 6016.1 is added to the Revenue and Taxation Code, to read:

6016.1.

(a) “Digital product” means prewritten computer software transferred on tangible storage media, transferred electronically, or accessed remotely.

(b) “Digital product” does not include any of the following:

(1) A digital asset.

(2) A digital audio work.

(3) A digital audiovisual work.

(4) A digital book.

(5) Digital infrastructure.

(6) A digital video game product.

(7) A digital visual work.

(1) “Computer” has the meaning defined in Section 6010.9.

(2) “Computer software” has the meaning defined in Section 6010.9.

(3) “Custom computer software” has the meaning defined in Section 6010.9.

(4) “Digital asset” means a digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology, as specified by the Secretary of the Treasury of the United States.

(5) “Digital audio work” means a work that results from the fixation of a series of musical, spoken, or other sounds, including a ringtone or music, that is transferred electronically or accessed remotely.

(6) “Digital audiovisual work” means a series of related images that when shown in succession impart an impression of motion, together with accompanying sounds, if any, that is transferred electronically or accessed remotely.

(7) “Digital book” means a work that is generally recognized in the ordinary and usual sense as a book that is transferred electronically or accessed remotely.

(8) “Digital infrastructure” means a cloud-based service provided remotely that allows a user to create, deploy, scale, or run the user’s own computer software on the service provider’s digital platform without managing, operating, or maintaining the user’s own infrastructure, including any hardware, software, networks, and facilities that are required to allow the user to create, deploy, scale, or run the user’s own computer software, required to complete the task.

(9) “Digital video game product” means an electronic, interactive game played for entertainment purposes by manipulating an input device to produce visual feedback on a screen that is transferred electronically or accessed remotely.

(10) “Digital visual work” means artwork created by using computer hardware and software processes which results in artwork in a digital format that is transferred electronically or accessed remotely.

(11) “Prewritten computer software” means computer software that is held or existing for general or repeated sale or lease, even if the prewritten software was initially developed on a custom basis or for in-house use, including the combination of two or more prewritten programs.

(d) This section shall become operative on January 1, 2027.

SEC. 11.

Section 6016.2 is added to the Revenue and Taxation Code, to read:

6016.2.

(a) “Accessed remotely” means to have accessed for consideration by use of a digital code, password, or other means prewritten computer software that resides on the vendor’s server or the server of a third party.

(b) “Tangible storage media” means any tangible device or material capable of storing a digital product, including, but not limited to, any internal or external drive, disk, memory card, or other item capable of storing a digital product.

(c) “Transferred electronically” means obtained by the purchaser, by means other than tangible storage media, in a manner that allows the purchaser to open, view, access, download, copy, possess, store, manipulate, update, or otherwise use the digital product.

(d) This section shall become operative on January 1, 2027.

SEC. 12.

Section 6052 is added to the Revenue and Taxation Code, to read:

6052.

(a) Notwithstanding Section 6010.5, and except as provided in subdivision (c), a retailer is relieved from liability to pay sales tax on the sale or purchase of a digital product that is transferred electronically or accessed remotely if the following applies, unless the purchaser is an insurer, as defined in Section 28 of Article XIII of the California Constitution:

(1) (A) The gross receipts from the sale of digital products by a retailer to a purchaser that are transferred electronically or accessed remotely exceed five million dollars ($5,000,000) in the aggregate in the current calendar year, or, beginning January 1, 2028, in the current or the preceding calendar year.

(B) The purchaser shall become liable for the use tax pursuant to subdivision (b) on the transaction that caused the retailer to exceed the threshold specified in subparagraph (A) and any adjustments made pursuant to paragraph (2).

(2) (A) On or before October 1, 2031, and every five years thereafter, the department shall multiply the amount specified in subparagraph (A) of paragraph (1) by the percentage increase in the California Consumer Price Index for All Urban Consumers between October 1, 2026, and the date of the calculation required by this subparagraph, and the result shall be rounded to the nearest one million dollars ($1,000,000) and shall be the applicable amount for the succeeding calendar year.

(B) The applicable amount computed pursuant to subparagraph (A) shall be operative beginning January 1 of the succeeding calendar year, and four years thereafter, as an adjustment of the amount specified in subparagraph (A) of paragraph (1).

(b) If a retailer is relieved from liability to pay sales tax pursuant to subdivision (a), the purchaser is liable for the use tax and shall self-assess and pay directly to the department taxes due under this part, Part 1.5 (commencing with Section 7200), and, if otherwise applicable, Part 1.6 (commencing with Section 7251) and Part 1.7 (commencing with Section 7280) on the transaction that caused the retailer to exceed the threshold specified in subparagraph (A) of paragraph (1) of subdivision (a) and any adjustments made pursuant to paragraph (2) of subdivision (a).

(c) (1) If the department determines that it is necessary for the efficient administration of this part, the department may waive the requirement for the purchaser to self-assess and pay taxes due directly to the department under subdivision (b), and the retailer shall be liable to pay the sales tax if the purchaser submits to the department a request for waiver in a form and manner prescribed by the department that includes all the places of business where the applicant expects to be a place of first use for purchases of digital products subject to subdivision (a).

(2) A purchaser that submits a request for waiver to the department under paragraph (1) shall also submit to the retailer all places of business where the purchaser expects to be a place of first use, which shall be considered the place of sale for purposes of the sales tax.

(d) A purchaser that is required to pay use taxes to the department under subdivision (b) shall obtain a use tax direct payment permit pursuant to the procedures provided in Section 7051.3.

(e) This section shall become operative on January 1, 2027.

SEC. 13.

Section 6054 is added to the Revenue and Taxation Code, to read:

6054.

(a) A retailer is relieved from liability to pay sales tax or collect use tax on the sale or purchase of a digital product transferred electronically or accessed remotely if the place of the sale or purchase of the digital product was deemed to be outside of this state pursuant to Section 6010.5, and the retailer demonstrates to the satisfaction of the department that the retailer made a reasonable effort to obtain accurate and complete address information from the purchaser.

(b) This section shall become operative on January 1, 2027.

SEC. 14.

Section 6201.55 is added to the Revenue and Taxation Code, immediately following Section 6201.5, to read:

6201.55.

(a) Notwithstanding Section 6010.5 and except as provided in subdivision (c), a retailer is relieved of the obligation to collect use tax on the sale or purchase of a digital product that is transferred electronically or accessed remotely if the following applies:

(1) (A) The sales price of digital products purchased by a purchaser from a retailer that are transferred electronically or accessed remotely exceeds five million dollars ($5,000,000) in the aggregate in the current calendar year, or beginning January 1, 2028, in the current or the preceding calendar year.

(B) The purchaser shall be responsible for reporting and paying the use tax to the department pursuant to subdivision (b) on the transaction that caused the purchaser to exceed the threshold specified in subparagraph (A) and any adjustments made pursuant to paragraph (2).

(b) If a retailer is relieved from the obligation to collect use tax pursuant to subdivision (a), the purchaser shall self-assess and pay directly to the department taxes due under this part, Part 1.5 (commencing with Section 7200), and, if otherwise applicable, Part 1.6 (commencing with Section 7251) and Part 1.7 (commencing with Section 7280) on the transaction that caused the purchaser to exceed the threshold specified in subparagraph (A) of paragraph (1) of subdivision (a) and any adjustments made pursuant to paragraph (2) of subdivision (a).

(c) (1) If the department determines that it is necessary for the efficient administration of this part, the department may waive the requirement for the purchaser to self-assess and pay taxes due directly to the department under subdivision (b), and the retailer shall have an obligation to collect the use tax if the purchaser submits to the department a request for waiver in a form and manner prescribed by the department that includes all the places of business where the applicant expects to be a place of first use for purchases of digital products subject to subdivision (a).

(d) A purchaser that is required to pay taxes to the department under subdivision (b) shall obtain a use tax direct payment permit pursuant to the procedures provided in Section 7051.3.

(e) This section shall become operative on January 1, 2027.

SEC. 15.

Section 6362.4 is added to the Revenue and Taxation Code, to read:

6362.4.

(a) There are exempted from the taxes imposed by this part the gross receipts from the sale or lease of, and the storage, use, or other consumption in this state of, the right to reproduce or copy a digital product in order for copies of the digital product to be distributed for consideration to third parties, even if a copy of the digital product is transferred concurrently with the granting of that right. Any tangible storage media on which the digital product is transferred is merely incidental.

(b) This section shall become operative on January 1, 2027.

SEC. 16.

Section 6372 is added to the Revenue and Taxation Code, to read:

6372.

(a) There are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption of, a digital product purchased solely for use outside of this state or in interstate or foreign commerce.

(b) (1) The burden of proving that the exemption created by this section applies is on the seller who makes the sale of a digital product, unless the seller takes from the purchaser a certificate to the effect that the property is purchased solely for use outside of this state or in interstate or foreign commerce in the form and manner prescribed by the department.

(2) The certificate described by this subdivision relieves the person selling the digital product from the duty of paying sales tax and collecting the use tax only if taken in good faith.

(c) If a purchaser certifies in writing to a seller that a purchase of a digital product is exempted by this section and uses the digital product in this state, the purchaser shall be liable for payment of sales tax as if the purchaser were a retailer making a retail sale of the property at the time of that use, and the cost of the property to the purchaser shall be deemed the gross receipts from that retail sale.

(d) (1) A purchaser that purchases a digital product for use in this state and a digital product solely for use outside of this state or in interstate or foreign commerce in the same transaction may issue an exemption certificate under this section for the purchase of any of those digital products eligible for the exemption and report and pay use tax on any of those digital products used in this state.

(2) A purchaser that issues an exemption certificate described in paragraph (1) shall report and pay use tax in a manner that reflects the use tax due on any of those digital products used in this state.

(e) (1) The department may set forth, authorize, or require alternative methods to calculate the sales or use tax due in this state that fairly reflects the sales or use tax due on any digital product sold or purchased for use in this state, including on licenses of digital products concurrently available for use in multiple locations.

(2) If an alternative method set forth, authorized, or required by the department pursuant to paragraph (1) is used to calculate the sales or use tax due, Section 6406 shall not apply.

(3) The department may prescribe any forms or exemption certificates, as necessary to administer this subdivision.

(f) The exemption created by this section does not apply to a sale or purchase of a digital product transferred on tangible storage media.

(g) This section shall become operative on January 1, 2027.

SEC. 17.

Section 6372.1 is added to the Revenue and Taxation Code, to read:

6372.1.

(a) There are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption of, a digital product that represents a service provided in electronic form in which both of the following apply:

(1) The service primarily involves the application of human effort by the service provider.

(2) The human effort described in paragraph (1) originated after the customer requested the service.

(b) The exemption provided by this section does not apply to the sale or purchase of the right to use the provider’s computer software running on a cloud infrastructure or the right to access that software from various client devices through either a thin client interface, including a web browser, or a program interface.

SEC. 18.

Section 6406 of the Revenue and Taxation Code is amended to read:

6406.

(a) A credit shall be allowed against, but shall not exceed, the taxes imposed on any person by Chapter 3 (commencing with Section 6201) of this part, by any ordinance enacted pursuant to Part 1.5 (commencing with Section 7200), and by any ordinance enacted pursuant to Part 1.6 (commencing with Section 7251) by reason of the storage, use, or other consumption of tangible personal property in this state to the extent that the person has paid a retail sales or use tax, or reimbursement therefor, imposed with respect to that property by any other state, political subdivision thereof, or the District of Columbia prior to the storage, use, or other consumption of that property in this state. The credit shall be apportioned to the taxes against which it is allowed in proportion to the amounts of those taxes.

(b) A credit shall be allowed against, but shall not exceed, the total sales taxes imposed on any retailer by Chapter 2 (commencing with Section 6051) of this part, by any ordinance enacted pursuant to Part 1.5 (commencing with Section 7200), and by any ordinance enacted pursuant to Part 1.6 (commencing with Section 7251) with respect to a retail sale in this state of a digital product transferred electronically or accessed remotely to the extent that the retailer has paid a retail sales tax imposed with respect to that digital product by any other state, political subdivision thereof, or the District of Columbia at the time of sale.

(c) A credit allowed by this section shall not be allowed against taxes that are measured by periodic payments made under a lease, to the extent that the taxes imposed by any other state, political subdivision thereof, or the District of Columbia were also measured by periodic payments made under a lease for a period before the storage, use, or other consumption of the property in this state.

(d) The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2027.

SEC. 19.

Section 7051.3 of the Revenue and Taxation Code is amended to read:

7051.3.

(a) “Use tax direct payment permit” means a permit issued by the department that allows a taxpayer to self-assess and pay state and local use tax under Part 1 (commencing with Section 6001), Part 1.5 (commencing with Section 7200), and if otherwise applicable, Part 1.6 (commencing with Section 7251), and Part 1.7 (commencing with Section 7280) directly to the department.

(b) (1) (A) Every person seeking to pay use taxes directly to the department shall file an application for a use tax direct payment permit. An application for a use tax direct payment permit shall be made upon a form prescribed by the department and shall set forth the name under which the applicant transacts or intends to transact business, the location of the place or places of business where the applicant intends to make direct payment of use tax, and any other information that the department may require.

(B) (i) Except as provided in clause (ii), an applicant for a use tax direct payment permit may register as a place to make direct payment of use tax any of the places of business in this state that the applicant expects to be a place of first use for purchases subject to use tax in accordance with the requirements of subdivision (e).

(ii) An applicant for a use tax direct payment permit who is required to pay use tax directly to the department pursuant to Section 6052 or Section 6201.55 shall register as a place to make direct payment of use tax any of the places of business in this state that the applicant expects to be a place of first use for purchases of digital products transferred electronically or accessed remotely that are subject to use tax in accordance with the requirements of subdivision (e).

(2) The application described in paragraph (1) shall be signed pursuant to the following:

(A) If the owner of the taxpayer is a natural person, the owner shall sign the application.

(B) If the taxpayer is an association or partnership, a member or partner shall sign the application.

(C) If the taxpayer is a corporation, an executive officer or a person specifically authorized by the corporation shall sign the application.

(c) Pursuant to an application, a use tax direct payment permit shall be issued to any person who meets both of the following conditions:

(1) The applicant agrees to self-assess and pay directly to the department any use tax liability incurred under this section.

(2) The applicant certifies to the department either of the following:

(A) The applicant is the purchaser for its own use or is the lessee of tangible personal property at a cost of five hundred thousand dollars ($500,000) or more in the aggregate, during the calendar year immediately preceding the application for the permit.

(B) The applicant is a county, city, or city and county.

(d) A use tax direct payment permit shall be issued to any person required to pay use tax directly to the department on purchases of digital products transferred electronically or accessed remotely pursuant to Section 6052 or 6201.55 for a period of 12 months.

(e) (1) Any person who holds a valid use tax direct payment permit shall self-assess and pay directly to the department use taxes due under this part, Part 1.5 (commencing with Section 7200), and if otherwise applicable, Part 1.6 (commencing with Section 7251), and Part 1.7 (commencing with Section 7280) for all purchases subject to use tax for which a use tax direct payment exemption certificate was issued, and shall report on the tax return required to be filed by Section 6452, the amount of local use tax applicable to each county, city, or city and county in which the first “use,” as defined in Section 6009, occurs.

(2) A person required to pay use tax directly to the department on purchases of digital products pursuant to Section 6052 or 6201.55 shall issue an exemption certificate to a retailer of digital products transferred electronically or accessed remotely.

(f) The department shall allow any holder of a use tax direct payment permit to issue a use tax direct payment certificate to any registered retailer or seller subject to all of the following:

(1) The use tax direct payment certificate shall be in a form prescribed by the department and shall be signed by, and bear the name, address, and permit number of, the holder of the use tax direct payment permit.

(2) Once a use tax direct payment certificate has been issued by a holder of a use tax direct payment permit, it shall remain effective until revised or withdrawn by the holder of the permit or until the retailer or seller has received actual notice that the permit has been revoked by the department.

(3) A use tax direct payment certificate relieves a person selling property from the duty of collecting use tax only if taken in good faith from a person who holds a use tax direct payment permit. A purchaser who issues a use tax direct payment certificate that is accepted in good faith by a seller or retailer of tangible personal property shall be the sole person liable for any sales tax and related interest and penalties with respect to any transaction that is subsequently determined by the department to be subject to sales tax and not use tax.

(4) Any person who holds a use tax direct payment permit and gives a use tax direct payment certificate to a seller or retailer shall, in addition to any applicable use tax liabilities, be subject to the same penalty provisions that apply to a seller or retailer.

(g) It is the intent of the Legislature that the department administer this part in a manner that assures that local use tax will be received by the county, city, or city and county where the first use occurs.

(h) The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2027.

SEC. 20.

Section 7202.1 is added to the Revenue and Taxation Code, to read:

7202.1.

(a) For the purposes of a tax adopted under this part, any retail sale of a digital product transferred electronically or accessed remotely is subject to the sourcing rule established pursuant to subdivision (b) of Section 6010.5.

(b) This section shall become operative on January 1, 2027.

SEC. 21.

Section 7254 is added to the Revenue and Taxation Code, immediately following Section 7253, to read:

7254.

(b) The section shall become operative on January 1, 2027.

SEC. 22.

Section 17039.4 of the Revenue and Taxation Code is amended to read:

17039.4.

(a) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, for taxpayers not required to be included in a combined report under Section 25101 or 25110, or taxpayers not authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2024, and before January 1, 2030, the total of all business credits otherwise allowable under any provision of Chapter 2 (commencing with Section 17041), including the carryover of any business credit under a former provision of that chapter, for the taxable year shall not reduce the “net tax,” as defined in Section 17039, by more than five million dollars ($5,000,000).

(b) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, for taxpayers required to be included in a combined report under Section 25101 or 25110, or taxpayers authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2024, and before January 1, 2030, the total of all business credits otherwise allowable under any provision of Chapter 2 (commencing with Section 17041), including the carryover of any business credit under a former provision of that chapter, by all members of the combined report shall not reduce the aggregate amount of “tax,” as defined in Section 23036, of all members of the combined report by more than five million dollars ($5,000,000).

(c) For purposes of this section, “business credit” means a credit allowable under any provision of Chapter 2 (commencing with Section 17041) other than the following credits:

(1) The credit allowed by Section 17052 (relating to credit for earned income).

(2) The credit allowed by Section 17052.1 (relating to credit for young child).

(3) The credit allowed by Section 17052.2 (relating to credit for foster youth).

(4) The credit allowed by Section 17052.6 (relating to credit for household and dependent care).

(5) The credit allowed by Section 17052.10 or 17052.11 (relating to the elective tax under the Small Business Relief Act).

(6) The credit allowed by Section 17052.25 (relating to credit for adoption costs).

(7) The credit allowed by Section 17053.5 (relating to renter’s tax credit).

(8) The credit allowed by Section 17054 (relating to credit for personal exemption).

(9) The credit allowed by Section 17054.5 (relating to credit for qualified joint custody head of household and a qualified taxpayer with a dependent parent).

(10) The credit allowed by Section 17054.7 (relating to credit for qualified senior head of household).

(11) The credit allowed by Section 17058 (relating to credit for low-income housing).

(12) The credit allowed by Section 17061 (relating to refunds pursuant to the Unemployment Insurance Code).

(d) Any annual refundable credit amount included in an election pursuant to Section 17039.5 is not included in the limitation set forth in subdivision (a) or (b).

(e) Notwithstanding the operative date in subdivision (a), for taxable years beginning on or after January 1, 2027, if an election is made pursuant to subdivision (k) of Section 17053.98.1, both the credit allowed against the “net tax” under clause (i) of subparagraph (A) of paragraph (3) of subdivision (k) of Section 17053.98.1 and the annual refundable amount calculated under subdivision (k) of Section 17053.98.1 shall not be included in the limitation set forth in subdivisions (a) and (b).

(f) Any amounts included in an election pursuant to Section 6902.5, relating to an irrevocable election to apply credit amounts under Section 17053.85, 17053.95, 17053.98, 17053.98.1, 23685, 23695, 23698, or 23698.1 against qualified sales and use tax, as defined in Section 6902.5, are not included in the five-million-dollar ($5,000,000) limitation set forth in subdivision (a) or (b).

(g) The amount of any credit otherwise allowable for the taxable year under Section 17039 that is not allowed due to application of this section shall remain a credit carryover amount under this part.

(h) The carryover period for any credit that is not allowed due to the application of this section shall be increased by the number of taxable years the credit or any portion thereof was not allowed.

(i) Notwithstanding anything to the contrary in this part or Part 10.2 (commencing with Section 18401), the credits listed in subdivision (c) shall be applied after any business credits, as limited by subdivision (a) or (b), are applied.

(j) For taxpayers that make the election under subdivision (k) of Section 17053.98.1, any amount of refundable credits pursuant to that subdivision over the five-million-dollar ($5,000,000) limitation under this section shall be allowed in the first taxable year beginning on or after January 1, 2027.

(k) If a taxpayer makes the election under both Section 17039.5 and subdivision (k) of Section 17053.98.1 with respect to the credit amount under Section 17053.98.1, the total amount of credit allowed pursuant to both elections shall not exceed the credit amount allowed under subdivision (a) of Section 17053.98.1.

(l) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section.

(m) The amendments made to this section by Section 6 of Chapter 17 of the Statutes of 2025 shall be operative for taxable years beginning on or after January 1, 2026.

(n) The amendments made to this section by the act adding this subdivision shall be operative for taxable years beginning on or after January 1, 2027.

SEC. 23.

Section 17039.5 of the Revenue and Taxation Code is amended to read:

17039.5.

(a) (1) For taxable years beginning on or after January 1, 2024, and before January 1, 2030, a taxpayer may make an election to receive an annual refundable credit amount of qualified credits for each taxable year to be allowed pursuant to paragraph (2).

(2) In each taxable year of the refundable period, the annual refundable credit amount shall be allowed as a credit against the “net tax” computed under this part for the taxable year, and the excess, if any, shall be credited against other amounts due, if any, and the balance, if any, shall be paid from the Tax Relief and Refund Account to the taxpayer.

(b) For purposes of this section, the following definitions shall apply:

(1) “Annual refundable credit amount” means 20 percent of the credit amount for the taxable year.

(2) (A) “Credit amount” means the amount of the qualified credits that would have otherwise been available to reduce net tax in the taxable year of the election but for the limitation under Section 17039.4.

(B) In the case of a pass-thru entity, the “credit amount” refers to the pro rata share or distributive share of the credit passed through to the partner or shareholder of the qualified taxpayer. For purposes of this subparagraph, the term “pass-thru entity” means any partnership, “S” corporation, or limited liability company treated as a partnership.

(C) In the case of an assigned credit, the “credit amount” refers to the credit amount that was assigned to the taxpayer.

(D) In the case of taxpayers required to be included in a combined report under Section 25101 or 25110, or taxpayers authorized to be included in a combined report under Section 25101.15, the “credit amount” refers to the credit amount of all members of the combined report.

(3) “Qualified credits” means the credits subject to the limitation under Section 17039.4.

(4) “Refundable period” means the first five consecutive taxable years beginning the third taxable year after the taxable year that the taxpayer makes an election under this section.

(d) The following shall apply for purposes of the election pursuant to this section:

(1) The taxpayer may make an election for each taxable year beginning on or after January 1, 2024, and before January 1, 2030.

(2) Each election shall be irrevocable and shall be made on an original, timely filed return required under Part 10.2 (commencing with Section 18401) for the taxable year that the election is made in the form and manner as prescribed by the Franchise Tax Board.

(e) (1) Any adjustment of an annual refundable credit amount shall be treated as a mathematical error appearing on the return. This includes, but is not limited to, all of the following:

(A) A valid election as required under this section was not made.

(B) The Franchise Tax Board determines that credit amount overstatements in any taxable year resulted in an overstatement in any carryover amount or an overstatement of any refundable credit amount.

(C) The Franchise Tax Board determines that the credit amount was overstated as a result of any subsequent adjustment in the amount of net tax, including, but not limited to, an audit adjustment or claim for refund.

(2) Any amount of tax due resulting from such disallowance may be assessed by the Franchise Tax Board in the same manner as provided by Section 19051.

(f) (1) The Franchise Tax Board may prescribe regulations necessary or appropriate to carry out the purposes of this section.

(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this section.

(g) This section shall remain in effect only until December 1, 2037, and as of that date is repealed.

SEC. 24.

Section 17039.6 is added to the Revenue and Taxation Code, to read:

17039.6.

(a) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, for taxpayers not required to be included in a combined report under Section 25101 or 25110, or taxpayers not authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2030, the total of all business credits otherwise allowable under any provision of Chapter 2 (commencing with Section 17041), including the carryover of any business credit under a former provision of that chapter, for the taxable year shall not reduce the “net tax,” as defined in Section 17039, by more than 70 percent or five million dollars ($5,000,000), whichever is greater.

(b) Notwithstanding any provision of this part or Part 10.2 (commencing with Section 18401) to the contrary, for taxpayers required to be included in a combined report under Section 25101 or 25110, or taxpayers authorized to be included in a combined report under Section 25101.15, for each taxable year beginning on or after January 1, 2030, the total of all business credits otherwise allowable under any provision of Chapter 2 (commencing with Section 17041), including the carryover of any business credit under a former provision of that chapter, by all members of the combined report shall not reduce the aggregate amount of “tax,” as defined in Section 23036, of all members of the combined report by more than 70 percent or five million dollars ($5,000,000), whichever is greater.