Californians will have to pay two new taxes next year after Governor Gavin Newsom signed the state’s budget in June. State leaders said the measures are aimed at helping California deal with a major loss of federal funding under the Trump administration.
The new budget includes a higher tax on health care providers and a new sales tax on many downloaded software products. According to the California Taxpayers Association, the budget includes “the largest tax increase in state history.”
The tax proposals have triggered a political fight, with Democrats defending them as necessary to protect state programs, while Republicans argue they will place an extra financial burden on residents and businesses.
Health insurance premiums could rise
One of the measures extends a tax on health care providers, which is expected to generate around $2 billion every year to support Medi-Cal, California’s Medicaid program.
Health insurers are expected to pass on part of the additional cost to customers. As a result, people with private health insurance could see their premiums rise by an average of about $100 a year, while a family of four could pay roughly $400 more annually.
Republican lawmakers have strongly opposed the measure and have even asked the Trump administration to step in. They argue that the tax increase still requires approval from the Centers for Medicare and Medicaid Services.
State Sen. Roger Niello (R) criticised the budget, saying, “Record spending does not equate to better quality of life, and anyone living in California for the last decade would likely agree. This budget is bad for job creators and workers.”
Downloaded software to be taxed
The second tax change affects many software products that people and businesses download online. Under the new rule, “prewritten” software will be treated as personal property and will become subject to California’s sales tax.
Legislative analysts estimate the measure will bring in about $900 million in annual revenue.
California’s statewide base sales tax rate is 7.25%, although local governments can add their own taxes. In some cities, including Lancaster and Palmdale, the combined sales tax rate is close to 12%.
Explaining the impact, longtime lobbyist Chris Micheli told ABC10: “Whether you get the product from the store or download it is all going to be subject to an additional roughly 10% tax, depending on what jurisdiction you are in the state of California.”
Everyday software products will be affected
The new sales tax will apply to many commonly used digital products. This includes workplace communication platforms such as Slack, artificial intelligence assistants, creative software like Adobe products and tax preparation programs such as TurboTax. The change means that many software tools used by both individuals and businesses will become more expensive once the new tax takes effect.