California Governor Gavin Newsom has a new idea for closing the state's budget gap: tax the software you download. On Thursday, Newsom proposed expanding the state's sales tax to include digital prewritten software, arguing it's only fair that online buyers pay the same 7.25% tax as those who walk into a Best Buy and grab a box.
Newsom made the case during a press conference, noting that he lives near a Best Buy and pays sales tax on software purchases there. "And I'm paying sales tax on a lot of this prewritten software. And then I find out that all my friends that aren't near a Best Buy, they're downloading and they are not paying sales tax. How is that fair?" he said.
The proposal, which needs approval from the California legislature, would take effect on January 1, 2027. Newsom pointed out that 35 states already tax digital prewritten software, and 24 have a specific tax on software-as-a-service (SaaS).
The revenue potential is significant. Newsom's office projects the tax could bring in $450 million for the state's general fund this budget year and double that in subsequent years. Local tax revenues could add another $560 million this year and $1.1 billion in following years. The proposal is part of a revised $350 billion California budget that eliminates the deficit for this year and next without major spending cuts.
