California's Two New Taxes for 2027: What SB 122 and SB 125 Actually Cost You (and the One Tax Cut Sacramento Can't Block)

Maya runs a one-person design studio out of a rented apartment in Long Beach. Her software stack (design suite, prototyping tool, cloud storage, accounting app, e-signature service) costs her about $4,100 a year, every dollar of it deductible, none of it taxed. On January 1, 2027, that changes: California will treat every one of those subscriptions as taxable tangible personal property, at Long Beach's combined sales tax rate, billed to her Long Beach address.

Her health plan is changing too. The same June budget that created the software tax also rebuilt the state's tax on managed care plans, and the independent Legislative Analyst's Office expects insurers to pass a meaningful share of it into premiums.

Neither tax will bankrupt Maya. Combined, they might cost her $450 a year. That is precisely what makes them worth understanding, because the question they raise is not "can I afford $450?" It is "what does it mean that the state found two brand-new things to tax this year, and what stops it from finding two more next June?"

This guide covers the new California taxes taking effect in 2027 in full:

• What SB 122 (the digital software sales tax) actually taxes, and the exclusions most headlines get wrong
• What SB 125 (the health plan tax) means for your premium, with the honest caveats
• What the two taxes cost real households and freelancers, in dollars
• Why the sourcing rule buried in SB 122 makes your address the deciding factor
• An honest look at whether Florida is actually greener, including where it isn't
• The before-January-1 checklist if you decide the trajectory is the answer

What Sacramento signed on June 29, 2026

Governor Newsom signed the 2026–27 state budget on June 29, 2026, closing a multibillion-dollar shortfall in part with two revenue measures that were chaptered the same day:

A California Taxpayers Association spokesperson described the package as the largest tax increase in state history from a dollar standpoint. That is a nominal-dollar claim worth quoting precisely, because it compares raw dollars rather than inflation-adjusted burden. The hard numbers behind it are not in dispute: CalTax president Robert Gutierrez put the proposals at $3.6 billion in annual tax increases, growing to $5.1 billion in 2027–28, warning they "will hurt every industry in the state and cause higher costs for all consumers."

Let's take the two taxes one at a time, precisely.

Tax #1. SB 122: California starts taxing software and SaaS

Since the dawn of the download, California has taxed software only when it arrived on a disc. SB 122 ends that. Effective January 1, 2027, the law expands the definition of taxable "tangible personal property" to include digital products, defined as prewritten computer software "transferred on tangible storage media, transferred electronically, or accessed remotely."

In plain English: the same sales tax you pay on a laptop now applies to the software running on it. The statewide base rate is 7.25%; combined rates with local district taxes commonly run 8.5% to 10.75% depending on the city.

What's taxed, and what escaped

The exclusions are where most of the reporting has gone wrong, so here is the actual line the statute draws:

▸ TAXED starting January 1, 2027 (tap to expand)

• SaaS subscriptions: design suites, office and productivity software, project management, CRM, accounting tools
• Downloaded prewritten software: tax-prep desktop editions, antivirus, creative applications
• Remotely accessed software: cloud tools you never install at all
• Physical-media software: already taxable, stays taxable

▸ NOT taxed: the exclusions the headlines miss (tap to expand)

• Streaming video and music: audiovisual and audio works are excluded, so Netflix and Spotify are out
• Video games: explicitly excluded
• Ebooks and digital books: excluded
• Visual works and digital assets: excluded
• Custom software: software built to a single customer's specification remains exempt, as it always was

Notice the shape of that line. Entertainment escaped; the working stack did not. The tax lands on the tools people use to earn a living. That is why the Legislative Analyst's Office flagged that a substantial share of the taxable base is business-to-business, and why its own analysis warns that taxes on business inputs "can lead to inefficient business operations and higher costs," with businesses typically passing those costs into consumer prices.

The sourcing rule is the tell

Buried in SB 122 is the provision that matters most for anyone reading this article: electronically transferred or remotely accessed software is sourced to the purchaser's address. That is how the CDTFA will know which district rate to charge, and whether to charge California tax at all.

What SB 122 costs at real subscription prices

Illustrative numbers for a self-employed professional's stack, at a 9.75% combined big-city rate (statewide base is 7.25%; some districts exceed 10%):

A casual household with a couple of subscriptions might see $50–$120 a year. A freelancer or consultant running a serious stack: $300–$600. A small agency paying for ten seats of everything: thousands, before the pass-through effects on everything else they buy.

Tax #2. SB 125: the health plan tax heading for your premium

The second tax is quieter and larger. California has long taxed managed care organizations (MCOs) to help fund Medi-Cal, but it taxed Medi-Cal plans at a far higher rate than commercial plans. A federal Centers for Medicare and Medicaid Services final rule banned that structure this year. SB 125 (Chapter 24, Statutes of 2026) is the redesign: every plan, public and private, pays the same $8.85 per countable enrollee per month for calendar years 2027 through 2029.

The arithmetic that matters to you:

• ~$1.5 billion a year is the expected new burden on private plans (about $2.3 billion total, restoring what the state collected before 2023).
• ~1.5% premium increase is the Legislative Analyst's Office estimate if plans pass the full tax through: roughly $100 a year for an individual, $400 for a family of four.
• Federal approval is required. The Department of Health Care Services cannot collect until CMS certifies the tax as federally permissible. Collection begins January 1, 2027 or upon approval, whichever is later, and the tax sunsets January 1, 2031.
• Revenue flows to a new Medi-Cal Stability Fund for capitation payments and reimbursement rates.

What the two taxes cost a real household (and why that's not the real number)

*Approximate California income tax, single/joint filers with standard assumptions; your figures will differ. Run your own numbers below.

Look at the last two columns together. That is the honest frame for the 2027 California tax increases: the two new taxes are a rounding error next to the income tax bill that a California address already generates. That bill runs to a top statutory rate of 13.3%, and effectively 14.4% on high wages once the now-uncapped State Disability Insurance levy is counted. The new taxes do not change the math. They confirm its direction.

The pattern is the point. In the span of a few budget cycles, California has reached for a retroactive-feeling credit limitation on businesses, an exit-tax proposal that resurfaces every session, a wealth-tax bill that keeps returning, and now a brand-new consumption tax on the tools of modern work plus a health-plan tax expected to reach premiums. Each individual measure is defensible in Sacramento's terms. Together they describe a state whose structural budget gap (the Medi-Cal shortfall alone drove much of this year's deal) guarantees that next June's budget will go looking for revenue too. If you want a deeper look at that trajectory, see our analysis of why high earners are leaving California and what the recurring California exit tax proposals would mean if one finally passes.

Is the grass actually greener? An honest Florida comparison

Here is where most articles like this one lose their credibility, so let's not. Florida is not a tax-free paradise where everything costs less. It is a state with a different structure, and for taxes specifically, the structure is the whole story.

Two rows in that table do the real work.

First, the software row: the exact thing California just started taxing is a thing Florida has formally declined to tax. The Florida Department of Revenue's long-standing position (Technical Assistance Advisement 16A-014) is that electronically delivered software, SaaS subscriptions, and cloud services are intangibles outside the sales tax entirely. This is not a loophole; it is the published policy.

Second, the last row. California's new taxes arrived through an ordinary June budget agreement, as next year's can. Florida's 0% income tax is not a legislative preference that could evaporate; it is a constitutional prohibition, changeable only by amending the constitution itself. When people say the grass is greener in Florida, this is the part that is actually true. It is not that Florida is cheap (its insurance market will remind you it is not), but that its tax structure is stable by design. You are not trading one legislature's appetites for another's. You are exiting the category of resident whose income can be reached at all.

For the fuller state-by-state picture, including states that look tax-friendly but claw at departing residents, see our 50-state tax residency rules guide and the State Tax Migration Guide pillar.

The address is the only veto you have

You cannot vote down SB 122 or SB 125; both passed as budget trailer bills, no ballot required. The one variable in every one of these statutes that you control is the address the tax sources to. SB 122 says so explicitly: the tax follows the purchaser's address. The income tax says it structurally: California taxes the worldwide income of California domiciliaries. Change the domicile, and 2027's new taxes (and the old ones) stop sourcing to you.

But domicile is a legal fact, not a mailing preference, and this is where people get hurt. The Franchise Tax Board audits departures aggressively, and it wins against moves that were real on paper and thin in fact. A genuine change of domicile from California to Florida means:

• A real residential address: a lease or deed at a residential-class Florida address, not a PO box or commercial mail drop. Banks, the DMV, and auditors all check the address class; a mail-drop address is the single fastest way to lose a residency audit.
• The document trail: Florida driver license within 30 days (Florida Statutes §322.031), voter registration (§97.041), a recorded Declaration of Domicile (§222.17), IRS Form 8822 updating your federal address.
• Severed California ties: final part-year return filed (it starts the statute-of-limitations clock), memberships closed, professional relationships moved, day counts logged.

Step-by-step instructions live in our dedicated guides: how to leave California residency, terminating California residency without triggering an FTB audit, how to become a Florida resident, and the complete Florida domicile checklist. If an auditor ever asks you to prove it, these are the five factors they will weigh.

Your before-January-1 checklist

If you decide the trajectory is the answer, here is the sequence. Work it top to bottom; the order matters because each step becomes evidence for the next.

1. Run the numbers first (July–August 2026). Use the state tax comparison tool to quantify what a Florida domicile changes at your income. The decision should be made on the income tax, with the new 2027 taxes as confirmation.
2. Secure a residential-class Florida address (August–September). Lease or deed, residential USPS classification, utilities in your name. This is the foundation every later document points back to.
3. Make the physical move and start the log. Presence plus intent is the legal test; a contemporaneous travel log reconciled to card statements is the evidence.
4. Convert the paperwork inside 30 days (October). Florida driver license (§322.031, surrender the California license), voter registration, vehicle registration.
5. Record your Declaration of Domicile (§222.17). Roughly a $10 county clerk filing that timestamps your intent. It is the single clearest signal available.
6. Repoint every institution (November). Banks, brokerage, employer payroll, insurers, IRS Form 8822. Payroll matters most: California-sourced wages follow the work, but a Florida domicile stops California from taxing your worldwide income.
7. Sever the residual California ties (December). Gym and club memberships, storage units, professional licenses you no longer need, the dentist. Auditors read ties like a jury reads motive.
8. File the final part-year California return (spring 2027). It closes the chapter and starts the audit statute of limitations running. Skipping it leaves the window open indefinitely.
9. Keep the file. Every document above goes in one place. If the FTB ever asks, you answer in an afternoon. That is what audit-proof means.

Frequently asked questions

What are California's two new taxes for 2027?

SB 122 extends sales and use tax to digital prewritten software and SaaS effective January 1, 2027, and SB 125 rebuilds the MCO health plan tax at $8.85 per enrollee per month for 2027–2029. Both were signed June 29, 2026 with the state budget and together are projected to raise roughly $2 billion a year once fully phased in.

Does the software tax apply to individuals or just businesses?

Both. Consumer subscriptions are covered directly, and the LAO expects the large business-to-business share to reach consumers anyway through prices.

Are Netflix, Spotify, or video games taxed under SB 122?

No. Audio, audiovisual works, video games, books, visual works, and digital assets are explicitly excluded. The tax targets prewritten software: SaaS, downloads, and remotely accessed tools.

How much will SB 125 raise my health insurance premium?

If fully passed through (the LAO's working assumption), roughly 1.5%: about $100 a year for an individual and $400 for a family of four. Collection also requires federal CMS approval first.

Can moving out of California really avoid the software tax?

Yes. SB 122 sources electronically delivered and remotely accessed software to the purchaser's address, and Florida does not tax electronically delivered software at all (TAA 16A-014). The address must be your genuine domicile, consistently on file, not a mail drop.

Is this really the largest tax increase in California history?

That is a California Taxpayers Association characterization ("from a dollar standpoint," per a CalTax spokesperson), meaning nominal dollars, not inflation-adjusted. The undisputed figures: $3.6 billion in annual increases proposed, growing to $5.1 billion in 2027–28.

Do I have to move before January 1, 2027?

No, but a domicile completed in 2026 means the new taxes never source to you, your 2027 income is not California income from day one, and your final part-year return covers 2026 cleanly. A mid-2027 move splits the tax year instead.

Does Florida tax SaaS or downloaded software?

No. The Florida Department of Revenue treats electronically delivered software and cloud services as nontaxable intangibles. Only software delivered on physical media is taxable.

Will California audit me if I move?

It might; the FTB audits departures aggressively, especially around liquidity events. Audits are won with documentation: real address, converted licenses, recorded Declaration of Domicile, severed ties, day counts. See our domicile audit guide.

What does it take to change domicile from California to Florida?

Physical presence plus demonstrated intent: a genuine residential address, Florida driver license within 30 days, voter registration, a §222.17 Declaration of Domicile, updated federal and financial records, and a final part-year California return. A domicile service like Your Tax Base manages the address and the documentation file end to end.

Related guides

Leaving California

• How to Leave California Residency: The Complete Exit Guide
• Terminate California Residency Without Triggering an FTB Audit
• California Exit Tax: What You Need to Know
• Why People Are Leaving California: The 2026 Tax Exodus
• Service: California to Florida Residency

Establishing Florida domicile

• How to Become a Florida Resident in 2026
• The Complete Florida Domicile Checklist
• The Florida Declaration of Domicile, Step by Step
• Service: Florida Residency Services

Residency rules & audits

• Pillar: State Tax Migration Guide
• State Tax Residency Rules: The 50-State Guide
• Proving a Domicile Change in a Tax Audit
• Why You're Paying Taxes to a State You Don't Live In

Authority references cited in this guide

• California SB 122 (2025–2026), taxation trailer bill; digital products provisions effective January 1, 2027 (chaptered June 29, 2026)
• California SB 125 (2025–2026), Ch. 24, Medi-Cal managed care organization provider tax (chaptered June 29, 2026)
• Legislative Analyst's Office, The 2026-27 Budget: Sales Tax on Prewritten Software (revenue estimates and B2B analysis)
• Office of Governor Gavin Newsom, budget signing announcement, June 29, 2026
• CalMatters, "California is getting ready to increase a health insurance tax. Will it affect your premium?" (SB 125 premium pass-through estimates)
• California Taxpayers Association, statement on $3.6 billion in proposed tax increases (Robert Gutierrez, May 14, 2026)
• Florida Department of Revenue, Technical Assistance Advisement 16A-014 (computer software and cloud computing)
• Florida Statutes §222.17, Declaration of Domicile