California Is Taxing Digital Products in 2027. Are Your Templates on the List?

If your inbox has been full of “California digital product tax” headlines lately, you’re not imagining it. Starting January 1, 2027, California will charge sales tax on certain digital products for the first time.

If you sell templates, courses, memberships, or anything else that lives in a download folder, you probably had one of two reactions: mild panic or a very specific question. Usually both.

The two questions I’m hearing most:

1. Does this apply to downloadable templates?
2. I’m not based in California. Does this even apply to me?

Let’s walk through it.

What actually changed

In June 2026, Governor Newsom signed Senate Bill 122. The law expands what California counts as “tangible personal property” (the legal term for the physical stuff that has always been subject to sales tax) to include digital products.

Here’s the plot twist. When you hear “digital product,” you probably picture everything you sell online: PDFs, templates, courses, and presets. California means something much narrower. Under the new law, a digital product is prewritten computer software. That’s software built for general sale instead of custom-made for one customer, whether it’s downloaded, delivered on a drive, or accessed online.

That “accessed online” part is the big one. Software as a service (SaaS, meaning subscription tools you log into, like your scheduling app or email platform) is officially in.

So despite the headlines, this is really a software tax.

What’s specifically left out

California carved out a long list of things that are not “digital products” under this law, including ebooks, audio (podcasts, audiobooks, and music), video content, digital artwork, video games played for entertainment, crypto and NFTs, and custom software built for a single customer.

There’s also an exemption that matters a lot for service providers. If a digital deliverable is really a service in electronic form, meaning it mostly involves human effort and that effort started after your client asked for it, it isn’t taxed just because you delivered it digitally. Think a custom logo, an edited photo gallery, or a contract drafted for one specific client.

So, are downloadable templates included?

Based on the law and the guidance released so far by the California Department of Tax and Fee Administration (CDTFA, the agency that runs sales tax), a standard downloadable template doesn’t appear to be covered.

Here’s why. California defines software as coded instructions that make a computer perform a task. A contract template in Word, a PDF checklist, a Google Doc, a Canva design, or a printable planner isn’t code. It’s a document. You need software to open it, but the file itself isn’t software.

Where it gets grayer is products that actually behave like software:

• Likely taxable: plugins, coded website themes, apps, scripts, browser extensions, and any tool customers log into to use.
• Worth a closer look: spreadsheets built on macros or automations, Notion systems, presets, and anything where the “template” is really a tool doing the work.
• Memberships: if members are mainly paying for content, education, and access to you, that looks a lot like the template analysis. If your membership centers on a proprietary software tool, that piece could be treated differently.

The CDTFA is still drafting regulations to clarify the details, so expect more guidance before January.

What if you’re not based in California?

This is really two questions. Does the tax apply to the sale? And do you have to collect it?

Does it apply?

For online sales, California looks at your buyer’s address, not yours. It checks the billing address first, then shipping or delivery address, then the address tied to their payment method, then their general mailing address. If one of those is in California, it’s a California sale. If none are, it isn’t.

Do you have to collect it?

An out-of-state seller only has to register and collect California tax if they’re “engaged in business” in California. For most online businesses, that happens when your sales into California go over $500,000 in the current or previous calendar year. A physical presence in California (an office, a team member working there, inventory) can also trigger it. Simply selling online to California customers doesn’t do it on its own.

Putting that together:

• Out of state, selling regular downloadable templates: you’re likely clear on both counts.
• Out of state, selling software, with California sales under $500,000: you likely don’t have to collect. Technically, your California customer owes “use tax” (sales tax’s lesser-known cousin that buyers pay when the seller doesn’t collect).
• Selling through a marketplace like Etsy or an app store: the platform may handle collection for you.

If you’re based in California

If you’re in California and sell software, you’ll generally need a seller’s permit and will collect tax on sales to California customers. There’s no $500,000 cushion for in-state sellers. Sales to buyers with out-of-state addresses aren’t California sales.

The part most of you will actually feel

Here’s the thing nobody’s putting in the headlines. Most small business owners are going to feel this law as buyers, not sellers.

If you’re in California, look at your software stack: email platform, scheduling tool, website builder, design app, and course platform. Starting in January, expect sales tax to show up on those invoices. It’s not a reason to panic. It’s a reason to update your budget before your first renewal surprises you.

Your pre-January to-do list

• Sort your products into three buckets: documents, software, and “hmm, not sure.”
• Check your checkout. Make sure you’re collecting a billing address, since that’s how California decides where a sale happens.
• Check your numbers if you’re out of state. Know roughly what you sell into California each year.
• Budget for tax on your software subscriptions if you’re California-based.
• Loop in your CPA on the filing side, and keep an eye out for updated CDTFA guidance.

This one looks scarier than it is. For most template sellers and service providers, the real work is knowing which bucket your products fall into and making sure your checkout and product descriptions say what you actually sell.

If you’re staring at your product list wondering where something lands, that’s exactly what a call is for. Book a call with me and we’ll sort it out together.