California lawmakers have approved two major tax-related budget measures that could affect online software subscriptions, private health insurance costs and some businesses beginning in 2027.

Senate Bills 122 and 125 cleared the Legislature last week and were presented to Governor Gavin Newsom. The measures are not yet state law and still require the Governor’s signature. If signed, they would become part of California’s 2026-27 budget package.

While the measures are statewide and are not specific to Ripon, they could affect local residents, small businesses, employers and people with private health insurance.

The state tax debate is also taking place as Ripon property owners receive ballots from the Ripon Consolidated Fire District for a separate proposed Fire Protection and Emergency Response Services Benefit Assessment. If approved, that local assessment would be added to property tax bills and is intended to help fund staffing for a second fire station.

When would the changes take effect?

Because the measures are budget-related bills, they would take effect immediately once signed by the Governor. However, the major tax provisions included in the bills would not begin right away.

The proposed sales tax expansion on certain digital software and subscription-based software services would become operative on Jan. 1, 2027.

The restructured Managed Care Organization tax, commonly called the MCO tax, would apply to health plans during the 2027, 2028 and 2029 calendar years. Its implementation would also depend on required federal approval or certification.

Other provisions involving business tax credits, a temporary first-year business tax reduction and a narrow tax on certain federal settlement payments would apply during future tax years.

Sales tax could expand to online software and SaaS

The most noticeable change for many residents and businesses would come from SB 122, which would expand California’s sales and use tax to include certain prewritten computer software delivered electronically or accessed remotely.

In simple terms, software would no longer need to be purchased on a physical disc, drive or other storage device to be taxable. Under the bill, qualifying prewritten software transferred electronically or accessed remotely would be treated as a taxable digital product.

That could include many subscription-based services commonly known as Software as a Service, or SaaS.

Common examples that could be affected include Microsoft 365, Google Workspace, QuickBooks, Adobe Creative Cloud, Canva, Zoom, Shopify, Square, Salesforce and similar cloud-based or subscription software programs. Whether a specific service is taxable would depend on how it is structured, whether it meets the state’s definition of prewritten software and future guidance from the California Department of Tax and Fee Administration.

The bill does not apply to all digital products. It specifically excludes digital books, digital music and other audio works, digital movies and video content, digital video games, digital visual works, digital assets and certain digital infrastructure services.

Custom software designed specifically for one customer would also continue to be treated differently from prewritten software.

Ripon’s current combined sales and use tax rate is 7.75%. If that rate remains the same in 2027, a taxable $100 software subscription or purchase would add about $7.75 in sales tax.

For a small business that pays for multiple online tools each month, the added cost could build over time. A local company using bookkeeping software, website services, design tools, online point-of-sale programs or video meeting subscriptions could see sales tax added to some monthly or annual bills.

Supporters say the change modernizes California’s tax system by treating software more consistently, whether it is bought in a store, downloaded online or accessed through the cloud. Critics argue it could increase costs for consumers, nonprofits, small businesses and employers that rely on digital tools.

Health plan tax could affect private insurance premiums

SB 125 restructures California’s Managed Care Organization tax, which is paid by health plans and helps fund Medi-Cal, the state’s health care program for low-income residents.

Under the new structure, the tax would be set at $8.85 per countable enrollee per month, although the Department of Health Care Services could modify that amount under certain conditions.

The tax itself would be paid by health plans, not directly billed by the state to individual residents. However, concerns have been raised that private health plans could pass some or all of the added cost to employers and customers through higher premiums.

The independent Legislative Analyst’s Office has estimated that, if health plans pass the full cost through, private health insurance premiums could rise by about 1.5%. The California Association of Health Plans has estimated that could equal approximately $100 more per year for an individual and about $400 more per year for a family of four.

Supporters say the redesign is needed to preserve Medi-Cal funding after federal changes restricted how states can structure provider taxes. California has relied on the MCO tax to help bring federal money into the Medi-Cal system and support health care services for millions of residents.

Corporate tax credits would remain limited

SB 122 would also extend California’s current limit on the amount of business tax credits that companies can use each year.

The existing $5 million annual cap was scheduled to expire after the 2026 tax year. Under the measure, the cap would continue through tax years beginning before Jan. 1, 2030.

Starting in 2030, the bill would set a permanent limit allowing business credits to reduce taxes by no more than the greater of $5 million or 70% of a company’s total tax liability.

This provision is mainly aimed at larger corporations that claim significant tax credits, including some research and development credits. It would not directly affect most households or small businesses that do not use large state tax-credit programs.

Temporary first-year tax break for some new businesses

Not every provision in SB 122 is a tax increase.

For taxable years beginning Jan. 1, 2027, through Jan. 1, 2030, newly formed limited liability companies, limited partnerships and limited liability partnerships would pay $400 instead of $800 in their first taxable year.

The temporary reduction could provide limited relief for people starting an eligible new business in California. It would apply only during the business’s first taxable year.

Narrow tax on certain federal settlement payments

SB 122 also includes a highly specific 100% tax on payments from the federal Anti-Weaponization Fund or certain related successor funds, settlements or agreements.

The provision would apply to qualifying payments received during tax years beginning Jan. 1, 2026, through Jan. 1, 2030. It would not affect ordinary California taxpayers and is written to apply only to a narrow group of qualifying settlement payments.

Ripon Fire District assessment remains separate

The state budget measures are separate from the Ripon Consolidated Fire District’s proposed Fire Protection and Emergency Response Services Benefit Assessment.

Property owners within the district are receiving ballots for the proposed assessment. If approved through the property-owner ballot process, the assessment would be added to the San Joaquin County property tax roll beginning in fiscal year 2026-27.

According to the Fire District’s Engineer’s Report, the proposed assessment would help fund increased firefighter staffing, training, equipment needs and the staffing of a second station at 1705 North Ripon Road, which is currently unstaffed.

The proposed base rate is $249.98 per Single Family Equivalent, although the exact amount for a parcel may vary based on property type and other assessment factors.

Combined costs could add up for some Ripon residents and businesses

For some Ripon residents and small-business owners, the combined effect of these separate proposals could be significant.

If the state measures are signed by the Governor, certain online software subscriptions could become subject to sales tax beginning in 2027. Private health insurance costs could also rise if health plans pass the MCO tax through to employers or customers.

At the same time, Ripon property owners are deciding whether to approve the Fire District’s separate benefit assessment. That proposal carries a base rate of up to $249.98 per Single Family Equivalent and would be added to property tax bills if approved.

The actual impact will vary based on a household’s property type, health insurance coverage and use of taxable software subscriptions. However, the proposals could create multiple new or higher costs for some Ripon residents and small businesses in the years ahead.

Example: How the costs could add up

To illustrate how the separate proposals could affect one household, consider a Ripon family of four with private health insurance, two taxable online software subscriptions and a home subject to the Fire District’s proposed base assessment rate.

For this example, assume the family pays $20 per month for each of two software subscriptions, or $480 per year combined. At Ripon’s current 7.75% sales tax rate, the proposed software tax would add about $37.20 per year if both subscriptions are considered taxable under the new law.

If private health plans pass the full cost of the proposed Managed Care Organization tax through to customers, industry estimates suggest a family of four could see about $400 more per year in health insurance premiums. If the Ripon Consolidated Fire District assessment is approved, a single-family property could also face a proposed base assessment of up to $249.98 per year.

Under that example, the family could see potential added annual costs of about $687.18 per year, or roughly $57.27 per month:

Potential Cost	Example Annual Increase
Sales tax on two $20 per-month software subscriptions	$37.20
Potential private health insurance premium increase for a family of 4	About $400
Proposed Ripon Fire District assessment	Up to $249.98
Potential Annual Total	About $687.18

This is only an example, not a guaranteed cost. Not every digital subscription would necessarily be taxable, subscription prices vary, health plans may not pass the full MCO tax through to customers, and Fire District assessment amounts can vary by parcel.

What happens next?

SB 122 and SB 125 are awaiting action by Governor Newsom.

If signed, state agencies would begin developing guidance and administration procedures. The software tax would not become operative until Jan. 1, 2027. The health plan tax would also begin no earlier than 2027 and would depend on required federal conditions being met.

Residents and businesses may want to review their recurring software subscriptions, especially services used for bookkeeping, website management, design, communication, point-of-sale systems and other business operations, as California prepares for the potential changes.