On Jan. 1, 2027, California sales tax starts applying to SaaS and prewritten software. If you've crossed California's economic or physical nexus thresholds, you're required to start collecting tax on behalf of the state. No one likes sales tax surprises, so we've put together a set of templates and timelines you can use to communicate these changes to your customers.
These templates are general communication examples, not tax or legal advice. Customize them with your legal or tax advisor before sending, especially where your contracts, exemption treatment, or customer-specific facts matter.
Why this can't wait until January
While the new law goes into effect on Jan. 1, 2027 there are steps that you should take to make sure you have the right information on file to properly collect, or not collect, sales tax. Use this as an opportunity to get your records right and show your customers you're looking out for them.
What and when to communicate
Not sure where or when to start? Here's a templated sequence to consider. This is a general guideline, so customize it to the timing that makes sense for your company and customers.
Template 1: address and billing confirmation
Send this to every customer with a California address on file.
Email template
Subject: Quick check on your billing details ahead of California's tax changes
Body copy:
Hi [NAME],
California is set to charge sales tax on software and SaaS starting Jan. 1, 2027. We're updating our billing records and want to make sure yours are accurate.
Please take a minute to confirm your billing address and primary billing contact here: [LINK TO ACCOUNT]
[SENDER]
Template 2: exemption and resale certificate request
If you're selling B2B, your customers may be exempt from paying sales tax. Use this as an opportunity to get your documents in order, and frame it as a way to save them a headache later.
Email template
Subject: Do you have a California resale or exemption certificate?
Body copy:
Hi [NAME],
Starting Jan. 1, 2027, California begins applying sales tax to software and SaaS under SB 122. That means [COMPANY] will charge California sales tax on invoices to customers in the state.
If your organization purchases for resale or qualifies for an exemption, we can apply that to your account and save you some unnecessary out-of-pocket costs.
Here's what we need:
- A completed California resale certificate (CDTFA-230) or the exemption certificate that applies to your organization
- The certificate made out to [COMPANY, LEGAL ENTITY NAME]
- Your California address as it should appear on our records
Send it to [EMAIL] or upload it here: [LINK]. If you're not sure whether you qualify, your tax advisor is the right person to confirm.
We'll confirm once it's on file.
[SENDER]
Template 3: tax change notification
Send this in early December, before it's competing with holiday inbox volume.
Email template
Subject: California sales tax on your [COMPANY] invoices starting January 1
Body copy:
Hi [NAME],
California signed SB 122 into law on June 29, 2026. Starting Jan. 1, 2027, California sales tax applies to software and SaaS purchases in the state.
What this means for you: beginning with your first invoice on or after Jan. 1, 2027, [YOUR COMPANY] will collect sales tax on behalf of California. Your invoices prior to January 1 are not affected.
The rate is based on your address on file, so please confirm your billing details are current: [LINK TO ACCOUNT]
If your organization is tax-exempt or makes B2B purchases for resale, send us a copy of your valid California certificate at [EMAIL] and we'll apply it to your account.
While we can't answer tax-specific questions, our sales tax compliance solution, Anrok, has provided some helpful information here. For questions about your account or invoices, reply here and we'll help.
[SENDER]
Template 4: $5+ million customers
If you have any customers that purchase more than $5 million from your business in a calendar year, there are unique rules they need to follow. Buyers over this threshold are obligated to self-assess and remit use tax directly to California, rather than relying on the vendor to charge sales tax. A large buyer who expects to cross the threshold should register for a use tax permit on their own.
Email template
Subject: California tax treatment on your [COMPANY] account
Body copy:
Hi [NAME],
Ahead of California's Jan. 1, 2027 change, I wanted to flag something specific to accounts your size.
California's new rules include a $5 million threshold. Once purchases of digital products from a single vendor cross $5 million in a calendar year, the tax obligation shifts from us to you, and you're required to self-assess and remit use tax directly to the CDTFA rather than us collecting it on our invoices.
Based on your current spend, this may apply to you. If your tax team wants to discuss how you'd like us to handle it, I'm happy to set up a call with our billing team.
[SENDER]
Template 5: the support macro
Save your support and billing teams some time, and save yourself the effort of responding to the inevitable Slacks from your team by setting up support macros for the most common questions.
"Why am I suddenly being charged tax?"
California passed SB 122, which extends state sales tax to software and SaaS starting Jan. 1, 2027. We collect it on invoices to California customers. This applies to software vendors registered to collect California sales tax, not just us. You can learn more about these new rules here [link].
"Can you remove the tax?"
We can only skip the tax if you have a valid California resale or exemption certificate on file. If your organization qualifies, send a copy to [EMAIL] and we'll apply it going forward from when we have it. If you need to look at an invoice we've already issued, that's a conversation for your tax advisor.
"Our contract says the price is locked."
Your subscription price hasn't changed. Sales tax is a separate charge we collect on behalf of the state, and it's listed as its own line on your invoice.
"Why is my rate different from another office?"
California sales tax is a combined state and local rate ranging from 7.25% to about 10.75%, so it varies by address. Yours is calculated from the billing address on your account.
How Anrok can help
Anrok handles everything else: monitoring when your California sales cross the $500,000 economic nexus threshold, handling CDTFA registration, calculating the combined state and district rate at the buyer's address, and filing and remitting on your behalf. Exemption certificates are stored and applied automatically so you don't have to think about them once collected.
If you're preparing for Jan. 1, see what SB 122 actually changes, check California's current SaaS taxability rules, or start your California registration.
Frequently asked questions
Do I have to notify customers before charging sales tax?
Generally, no, but we recommend that you use it as a way to engage with your customers and avoid confusion or disputes in the future. As always, we recommend reviewing any past contract language with your legal or tax advisor to ensure that there isn't any language that might impact who's responsible for the tax, like "tax-inclusive" or "tax gross-up" language.
What if a customer refuses to pay the tax?
This is why the terms review and the notification campaign have to happen before January. If a customer still disputes the charge once it's on an invoice, your contract language and your advisor determine where it lands.
Can I apply an exemption certificate retroactively?
Certificates apply going forward from the point you have them on file. California guidance clearly states that certificates must be collected at the time of sale and can't be applied retroactively.
What if my customer buys more than $5 million a year from me?
Under SB 122, a buyer purchasing more than $5 million a year of digital products from a single seller remits the tax directly to CDTFA, which relieves you of collecting on that buyer. Those accounts need a direct conversation, and you need a way to track the threshold.
Does my customer need to provide a use tax permit before I stop charging tax?
Not under the current California guidance as of Aug. 18, 2026. Once a buyer crosses the $5 million threshold for digital products purchased from a single seller in a calendar year, the seller stops charging sales tax, and the buyer self-assesses and remits use tax directly to California. California may clarify or change this through future regulations, so confirm the latest requirements with your tax advisor before making the call.
Does this apply to customers outside California?
Generally no. The tax follows sales sourced to a California address. Multistate buyers are messier. SB 122 provides no multiple points of use certificate, so scope your notification list with your tax advisor rather than filtering on billing address alone.
How do I know which of my products are in scope?
That's a determination to make with your tax advisor before you send any of these emails. As background, SB 122 covers prewritten software and SaaS starting Jan. 1, 2027, custom software stays exempt, and a modification counts as custom only to the extent of the modification. The edge cases, like configurable platforms and professional services bundles, are where the judgment calls live.
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