What is SB 122?
California’s Senate Bill 122 was signed by Governor Newsom on June 29, 2026, expanding the state’s sales and use tax base to include certain digital products and remotely accessed software. The new law also comes with limits to certain business tax credits and provides a reduced first-year annual tax for newly formed LLCs, LPs, and LLPs.
How will this affect your business?
Effective January 1, 2027, California will begin taxing certain prewritten software that is transferred electronically or accessed remotely, including some SaaS products. For rental property owners and property managers who rely on software and online services, that could mean higher costs for some of the software used to manage their properties.
For rental property owners, the potential impact may include:
- Tenant Screening & Leasing: Certain tenant-screening, leasing, and application platforms may be affected, depending on how the software and service is provided and whether the charges are for taxable prewritten software or an exempt service.
- Management & Accounting: Property management, financial software, accounting, and bookkeeping may be affected if the service involves taxable prewritten software accessed remotely.
- Other Software and Subscriptions: Other cloud-based software and subscriptions used in rental business operations may also be subject to the new tax, depending on the nature of the service or product.
What Property Owners Can Do Now
- Review current software and SaaS subscriptions: Identify which services you use and determine whether they may be subject to SB 122.
- Ask vendors whether their products will be subject to the new tax: Contact software providers to find out whether sales or use tax will be added to your invoices beginning in January 2027.
- Look for opportunities to consolidate: Review your paid subscriptions and see whether you can eliminate unnecessary services or combine multiple platforms.
- Build the additional cost into the 2027 operating budget: For rental properties, the most practical approach may be to account for the additional software expense when preparing the property’s 2027 budget.
- Talk to a tax professional: Consult a tax professional on how SB 122 applies to your specific software and subscription arrangements.
Looking for Guidance?
Meet the experts at AOA’s Trade Show & Landlording Conference on Wednesday, August 19.
With new laws and rising operating costs, now is a great time to connect directly with the professionals who can help. At the Trade Show, you will meet software and service vendors, tax professionals, attorneys, and other industry experts who can help you navigate these changes.
AOA’s FREE Million Dollar Trade Show & Landlording Conference
Date: Wednesday, August 19, 2026
Time: 7:30 AM – 5:00 PM
Location: Long Beach Convention Center, Hall C
Register Free Today: https://www.eventbrite.com/e/aoas-free-million-dollar-trade-show-long-beach-tickets-1990578023453?aff=midmonth
This information is provided for general informational purposes and is not tax or legal advice.