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By: @Marcus Detwiler

TAKE ACTION: Please share your examples with CSDA Legislative Representative Marcus Detwiler at marcusd@csda.net. 

CSDA, in partnership with the Association of California Healthcare Districts (ACHD), submitted a joint letter to the California Department of Tax and Fee Administration (CDTFA) to provide comment on a discussion paper containing draft proposed regulations intended to apply California sales and use taxes to transactions involving digital prewritten software per the enactment of SB 122. CDTFA had previously held an interested persons meeting on September 10, the second of two meetings following its July 21 meeting on the same topic.

CSDA’s joint comment letter articulates that software used by special districts is inherently “custom” and should therefore be exempt from the application of sales/use taxes under existing exemption frameworks for custom software.

This advocacy builds on the efforts CSDA, ACHD, and coalition partners advanced while the State Legislature was still in session to exempt special districts from the application of additional sales and use taxes. The coalition group lobbied lawmakers to address the issue in the August budget season. While the budget bills approved by the Legislature did not include an explicit special district exemption, CSDA’s joint comment letter to CDTFA asserts, the “custom” software exemption within SB 122 should be interpreted to apply to the purpose-built software special districts depend upon to operate and deliver highly-specialized services to our unique communities. 

Digital software tailored to provide essential government services through special districts should be considered “customized” due to the narrow use cases, even if that software is utilized by more than one public agency. Without recognizing this unique government sector issue, the tax will be inappropriately applied to systems that truly fall within the custom framework. CSDA’s proposed revision would ensure that the regulations adopted by CDTFA appropriately classify the types of technology used by special districts, as these are customized applications unique in facilitating services to their respective communities.

The new sales and use taxes on digital pre-written software are slated to take effect January 1, 2027. CSDA continues to solicit members’ examples of the types of software deployed by special districts that power the delivery of local services as well as the estimated financial impact associated with the extension of additional sales/use taxes to transactions related to that software.

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