Is SaaS Taxable in California? 2025 Guide
No, California does not tax SaaS when software is accessed remotely over the internet. California treats SaaS as a non-taxable service, not as tangible personal property.
Quick Reference
Why California Doesn't Tax SaaS
California taxes sales of "tangible personal property." The CDTFA (California Department of Tax and Fee Administration) has consistently held that software accessed remotely—without any transfer of tangible media—is not tangible personal property and therefore not subject to sales tax.
This is good news for SaaS companies. If you're selling subscriptions to California customers and delivering your software entirely over the internet, you do not need to collect California sales tax on those subscriptions.
When California DOES Tax Software
While SaaS is exempt, California does tax software in these situations:
- Physical media: Software delivered on CD, USB, or other tangible medium
- Hardware bundles: Software bundled with hardware sales
- On-site installation: Software requiring physical installation by the vendor
If you sell any tangible products alongside your SaaS (hardware, physical media), those components are taxable even though the SaaS portion is not.
California Nexus Rules
Even though California doesn't tax SaaS, you may still have California nexus for other reasons. Understanding nexus matters if you sell any taxable products or may expand your offerings in the future.
Economic Nexus
California's economic nexus threshold is $500,000 in California sales in the preceding or current calendar year. This threshold applies to sales of tangible personal property delivered to California.
Physical Presence
- Employees: Any employee in California creates nexus
- Contractors: Independent contractors may create nexus
- Property: Inventory or property in California creates nexus
Common Misconception
Important: Many accountants and tax advisors correctly know that California doesn't tax SaaS—but they may incorrectly assume this is true everywhere. It's not. Texas, New York, Pennsylvania, and several other states DO tax SaaS. Don't assume your California-based accountant's advice applies to other states.
Selling in Other States?
California may not tax SaaS, but many other states do. Check your nexus exposure across all 10 states we cover.
Start Free AnalysisDo You Need to Register?
If you only sell SaaS to California customers and don't sell any tangible products, you likely do not need a California seller's permit for sales tax purposes. However, you may still need to register for:
- Franchise Tax: If you're doing business in California, you may owe California Franchise Tax (income tax)
- Employer obligations: If you have California employees
Sources
- Statute: CA Rev. & Tax. Code §6006(a), §6010.9
- Official Guidance: CDTFA Software Manufacturers Guide
- CDTFA Publication 109 (Computer Industry)
- Reg. 1502 (Computers, Programs, and Data Processing)
- Nortel Networks case (technology transfer agreements)
- Last Verified: 2025-12-21