October 22, 2019

October 21, 2019

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California Proposes Legislation to Impose Sales and Use Tax on Services

Recently proposed legislation would require sellers to collect sales and use tax on the sales price of certain services to California businesses.

On Feb. 5, 2018, California Senator Robert Hertzberg introduced a bill, which if enacted, would impose sales and use tax on purchases of services by businesses for benefit and use in California, effective Jan. 1, 2019.  For services that benefit or are used by the purchaser’s California and non-California operations, a share of the services would be apportioned to California.  The proposed tax rate has not yet been determined.  Notably, the tax would not apply to purchases of services by individuals.

The proposed legislation provides an exemption for healthcare, education, and child care services, and interest and insurance payments subject to the California gross premiums tax.  Presumably, non-exempt services would be subject to tax, including legal, accounting, maintenance, real estate brokerage, consulting, IT support, cloud computing, and advertising services.  In addition, businesses with less than $100,000 of gross receipts in the previous four quarters would be exempt.  The bill does not provide an explicit resale exemption or exemptions for services purchased in the provision of other services, so it is possible that the current version of the proposed legislation would seek to impose multiple levels of tax where services are purchased for resale.   The bill would include a change in California statute that would result in taxpayers paying a higher tax, and therefore, would require approval by two-thirds of each house of the California Legislature in order to pass. 

Sellers of services and California business should continue to monitor the progress of this proposed legislation.  If history is any guide, this bill might have a rocky road in the event it is enacted into law.  Although a few smaller states impose their sales tax on a broad range of services, the last time a major state tried to do so was in 1987 when Florida expanded its sales tax to encompass most service transactions.  Because advertising services were subject to tax under that 1987 law, there was a barrage of editorials from newspapers, television, and radio outlets which helped lead to the repeal of the tax after only six months.  Similar proposals have failed in California in the past, but those bills sought to tax services purchased by both individuals and businesses.  Given the significance of a tax on businesses purchasing services, such as software services, this bill is likely to be an important issue in this legislative session and may have subsequent amendments if it actually moves towards enactment.

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About this Author

William Gorrod, Greenberg Traurig Law Firm, San Francisco and New York, Real Estate and Tax Law Attorney

William H. Gorrod focuses his practice on state and local tax issues, and advises clients on controversy, planning, and compliance matters on a multistate basis. His emphasis is on state and local income and franchise taxes, bank taxes, gross receipts taxes, unincorporated business taxes, sales and use taxes, real estate transfer taxes, and payroll taxes. 


  • State and local tax

  • Tax compliance advice

  • Civil tax disputes,...

Marvin Kirsner, Greenberg Traurig Law Firm, Boca Raton, Tax Law Attorney

Marvin A. Kirsner is an attorney at the Boca Raton office where his primary areas of practice deal with corporate, transactional and industry specific tax issues. He serves as the co-chair of the State and Local Tax (SALT) Practice.


  • Internet tax and electronic commerce tax issues

  • Multistate tax issues

  • Federal, state and local tax controversies

  • Federal and state tax planning for business transactions, mergers, acquisitions and divestitures

  • Telecommunication tax matters

  • Bankruptcy tax matters

  • State tax incentives for corporate relocation

  • Entertainment industry tax issues

  • Energy tax incentives

  • Climate change

  • Blockchain/cryptocurrency

Bradley Marsh, Greenberg Traurig Law Firm, San Francisco, Tax Law Litigation Attorney

Bradley R. Marsh is an attorney at the San Francisco office and focuses his practice on tax controversy matters, including property, sales, payroll, business license, employment, franchise, parcel, district, documentary transfer, transient occupancy, utility user, income, parking, gift and estate taxes. He serves as a co-chair of the State and Local Tax (SALT) Practice. Brad represents clients in audits, litigation and administrative hearings, as well as analyzing transactions and business models, and providing legislative solutions. 


Glenn Newman, Greenberg Traurig Law Firm, New York, Real Estate and Tax Law Attorney

Glenn Newman focuses his practice on tax planning and controversy matters involving state and local taxes including personal income tax, corporate tax, sales tax and real property transfer taxes.He has held several government-positions in New York City throughout his illustrious career. He was most recently named to serve by the City Council as the President of the NYC Tax Commission. 

Prior to working in the finance department, Glenn Newman was the department's head of the Tax and Bankruptcy Division, in the Office of the Corporation Counsel of...