Assembly Approves SB 122 Revenue Trailer Bill; Debate Centers on 'App Tax' and Business Credits

The California Assembly voted to approve SB 122, the chamber’s revenue trailer bill, after floor debate about the measure’s components and economic impact. Assemblymember Gabriel presented the bill as necessary revenue policy to address an out-year structural deficit; opponents warned the measure proposes new taxes on software and digital services.

Why it matters: SB 122 includes a proposed expansion of the sales and use tax to some forms of prewritten software and digital services (what several members described as an "app tax"), revisions to certain business tax credits, and other revenue measures the majority said are needed to stabilize future budgets.

Opposition on the floor focused on the tax expansion’s impact on small businesses and California’s innovation economy. "This is a regressive app tax for the working people of California and the small business owners trying to keep their lights on," one member said, arguing that phones and data services are necessities for modern business operations. Critics warned the change could raise costs for everyday digital tools used by small employers and consumers.

Supporters pointed to components intended to protect revenues and to cap some multinational uses of tax credits while lowering costs for startups (for example, reducing first-year business taxes in one cited provision). The bill passed by recorded vote (Ayes 54, Nos 20). Advocates argued the revenue provisions are part of a larger package to preserve key services and avoid steeper cuts.

Process and outcome: SB 122 was presented without reference to file, debated at length with recorded roll calls on procedural motions and amendments, and passed on the floor (Ayes 54, Nos 20). The Assembly also approved related technical budget bills that affect implementation timelines.