Two states start taxing software as a service (SaaS) on January 1, 2027: California and Colorado. Beyond them, the list of enacted changes is short. Maryland adds rules for multi-state certificates and requires electronic filing, Tennessee adds a tax on sending money abroad that a court has paused, and Illinois starts a new tax on targeted advertising. Several deadlines also fall before the end of 2026.
This guide lists only changes that are already law and that we confirmed on a state source on October 9, 2026. Most states publish their January local rate notices in November and December, so check your state's site for those. This is educational information, not tax advice.
Sales tax changes on January 1, 2027 at a glance
| State | Change | What it affects |
|---|---|---|
| California | Prewritten software and SaaS become taxable (SB 122) | SaaS and software sellers |
| Colorado | Downloaded software exemption repealed (HB26-1223), pulling most SaaS into tax | SaaS and software sellers |
| Maryland | Multiple-points-of-use certificate rules and mandatory electronic filing | Sellers of digital products and IT services |
| Tennessee | Sales tax on money transmission abroad, enforcement paused by a court | Licensed money transmitters |
| Illinois | New 10% tax on targeted advertising, separate from sales tax | Large advertising providers |
California taxes SaaS and software
Senate Bill 122 makes prewritten software taxable however it is delivered: on physical media, by download or by remote access. Custom software built for a single customer stays exempt, and so do digital audio, video, books, games, visual works, digital assets and digital infrastructure. The rate is the 7.25% state base rate plus district tax, sourced to the customer's billing address first. A buyer that spends more than $5 million a year with one seller reports the use tax directly. See our California SaaS sales tax guide.
Colorado repeals its software exemption
House Bill 26-1223 repeals Colorado's downloaded software exemption for sales on or after January 1, 2027. Software that is available for repeated sale or license becomes taxable, unless it is custom software or is governed by a negotiable license agreement. The act depended on two companion bills not becoming law, and both died in a Senate committee on May 11, 2026. The Colorado Department of Revenue is still writing rules, including what counts as a negotiable license. See our Colorado SaaS sales tax guide.
Maryland changes certificates and filing
Maryland adds a statutory framework for multiple-points-of-use (MPU) certificates, which buyers use when a digital product or IT service is used in several states. The Comptroller's May 2026 tax alert says authorizations renew every two years, a vendor-level certificate persists for future purchases, and there are set procedures for revocation and notice. Sales tax returns must also be filed electronically for periods beginning after December 31, 2026. See our Maryland sales tax guide.
Tennessee taxes money transmission, but it is paused
Tennessee will apply sales tax to licensed money transmitters sending money from Tennessee to a place outside the United States or its territories. The Department of Revenue says the tax is $10 per transaction plus 2% of the amount over $500, and local option tax does not apply. An August 2026 agreed order from the Davidson County Chancery Court bars enforcement until the court rules on the law's constitutionality, with a 45-day grace period if it is upheld. See our Tennessee sales tax guide.
Illinois adds a targeted advertising tax
Public Act 104-0468 imposes a 10% Targeted Advertising Services Tax on gross receipts from targeted advertising delivered to users in Illinois, beginning January 1, 2027. It applies to providers with $1 million or more in gross receipts over the preceding 12 months, tested quarterly. It is a separate occupation tax, not part of the sales tax, and providers register and file monthly. Most online retailers are not covered.
What to do before January 1
Three dates matter before the new year:
- October 31, 2026, Illinois remote retailer amnesty. Sellers with unpaid Illinois sales from January 1, 2021 through June 30, 2026 can apply for simplified rates and waived penalties and interest. Illinois has already removed its 200-transaction nexus threshold, so only the $100,000 gross receipts test applies. See our Illinois sales tax guide.
- December 31, 2026, New York penalty and interest discount. New York waives 100% of penalties and 50% of interest on sales tax liabilities that were final by September 1, 2026, if the tax is paid in full by December 31, 2026. The same budget bill starts a phased reregistration of all sales tax vendors, with each selected vendor getting at least 180 days' notice. See our New York sales tax guide.
- Before January 1, SaaS sellers. Classify each product, check your billing addresses for California and Colorado customers, decide whether you need to register, and review contracts for who bears the tax.
If you already owe tax in a state and have not registered, a voluntary disclosure agreement can limit penalties and lookback.
What is not changing on January 1, 2027
- DC's sales tax rate. It stays at 6% through September 30, 2027. The increase to 7% was postponed.
- Kentucky's nexus threshold. The 200-transaction test was removed on August 1, 2026, not January 1, 2027.
- Washington's new hygiene and diaper exemptions. They begin January 1, 2029.
How Kintsugi helps
Kintsugi monitors your nexus across every state where you sell, applies each state's taxability rules, and files returns. See Kintsugi for SaaS and our SaaS sales tax by state guide for how every state treats SaaS today.
Frequently asked questions
What sales tax changes take effect January 1, 2027?
California and Colorado begin taxing SaaS and software. Maryland adds multiple-points-of-use certificate rules and mandatory electronic filing. Tennessee's money transmission tax and Illinois's targeted advertising tax also start, though Tennessee's is paused by a court order.
Is SaaS taxable in California and Colorado in 2027?
Yes, from January 1, 2027, unless it is custom software or, in Colorado, governed by a negotiable license agreement. See our guides for California and Colorado.
Do sales tax rates change on January 1, 2027?
Some local rates do. For example, the Nebraska Department of Revenue lists new or higher local rates in Winside, Eagle and Hay Springs from January 1, 2027. We found no confirmed state-level rate change yet, and agencies publish most notices in November and December.
Is there a new economic nexus threshold in 2027?
We found no enacted change to a state's economic nexus thresholds taking effect between October 2026 and March 2027.
Where do I find my state's rate changes?
Each state's department of revenue posts rate notices, usually 30 to 90 days ahead. Check yours in November and December.
Sources
- California Department of Tax and Fee Administration, Tax guide for digital products and notice L-1036.
- Colorado General Assembly, HB26-1223, HB26-1221 and HB26-1222.
- Maryland Comptroller, Sales and use tax updates, 2026 to 2027, May 27, 2026.
- Tennessee Department of Revenue, Important Notice 26-12.
- Illinois General Assembly, Public Act 104-0468; Illinois Department of Revenue bulletins FY 2026-12 and FY 2026-28.
- New York State Senate, S9009-C, Part N, Chapter 59 of 2026.
- DC Office of Tax and Revenue, Sales and use tax.
- Kentucky General Assembly, HB 757.
- Nebraska Department of Revenue, Sales and use tax.
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