Your Bills Just Got Heavier: California's Two New Tax Hits Arrive in July

If you’ve been enjoying a relatively stable cost of living in California, take a breath. The state legislature just approved one of the biggest tax increases in a decade, and it’s coming your way faster than you might expect.

California lawmakers greenlighted two major tax increases this week, both slated to hit consumers and businesses hard starting July 1st. The first targets health plans across the state, with experts estimating an average increase of about $100 a year for individuals using private insurance. The second—and potentially more sweeping—is a brand new sales tax on digital software. That means Microsoft Office, Quickbooks, Slack, and Workday will all be subject to a base 7.25% tax, though depending on where you live in California, it could climb higher.

Here’s where it gets real: David Klein with the California Taxpayers Association warns that companies will start passing these costs down to consumers almost immediately.“It could be very, very fast,”Klein said in an interview with KCRA 3’s Ashley Zavala.“Companies are going to have to start paying it right away.”When you consider that nearly every business operation now relies on some form of software—payroll systems, cybersecurity tools, customer databases—Klein’s concern about cascading costs makes sense. Start adding 10% or more to software at every step of a supply chain, and those expenses compound quickly.

Governor Gavin Newsom’s administration estimates the digital software tax will bring in about $1 billion annually. But the California Taxpayers Association thinks the real number could be five to six times that amount. That discrepancy matters because it suggests the state may not have fully vetted this policy before rushing it through the legislature. Klein pointed out the governor announced it just a month ago, and within weeks it was fast-tracked through the legislative process with minimal public hearings.“Opponents had two minutes of testimony here and there,”he said.“And that was sort of it.”

This is the kind of policy that raises legitimate questions about process. When major tax code changes happen with limited debate and rushed timelines, unintended consequences tend to follow. Will some businesses relocate? Will certain software-dependent industries leave California? Will consumer behavior shift? Those are the questions the California Taxpayers Association says should have been answered before the bill passed—not after.

All of this is part of the broader state spending plan the governor and legislature are expected to finalize by month’s end. For Sacramentans and Californians across the state, that means starting July 1st, expect to feel the impact in your health insurance premiums and in the price of the digital tools your employer uses.