California Approves Two New Taxes: Health Premiums and Software Downloads

California just handed traders a fresh policy variable. Gov. Gavin Newsom signed a state budget in June that includes two new taxes taking effect next year, and the California Taxpayers Association is calling it the largest tax increase in state history from a dollar standpoint.

Newsom and Democratic lawmakers agreed on proposals that would raise health insurance premiums and slap a new charge on software downloads in an effort to make up federal revenue loss from an antagonistic Trump administration, Democrats said.

The health plan tax

The budget extends a tax on health care providers that is expected to generate about $2 billion annually to help fund Medi-Cal. The mechanism is a managed care organization levy that flows through to premiums.

The managed care organization law will tax health plans $8.85 per enrollee per month — about $106 annually — from 2027-29, with the revenues going into a Medi-Cal stability fund.

Insurance companies will pass through the tax to employer-provided plans, and the association estimates individuals will see increases to their monthly premiums of around $100 a year, or $400 to a family of four. For the health insurers, Bacchi estimates the tax to his industry at about $1.5 billion a year.

The software tax

The budget also changes how many digital software products are taxed by classifying certain “prewritten” software as taxable personal property. That means purchases or downloads of software such as Adobe products, Slack, TurboTax and some artificial intelligence tools could now be subject to California’s sales tax, depending on the type of transaction.

California’s base sales tax rate is 7.25%, though local jurisdictions can impose additional taxes. “Whether you get the product from the store or download it is all going to be subject to an additional roughly 10% tax, depending on what jurisdiction you are in the state of California,” Micheli said.

According to the governor’s estimates, this tax is anticipated to generate $450 million in 2026-2027, growing to $900 million in 2029-2030.

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The politics

A California Taxpayers Association spokesperson described the two taxes as the largest tax hike in the state’s history from a dollar standpoint, ABC10 reported.

Newsom’s press office has blamed Trump, for instance, for why the health tax is needed. “This is Trump’s tax — thanks to his Big Beautiful Betrayal HE signed last year, California law needed to be changed,” his office posted on X.

Newsom’s budget also includes a new cap on some corporate tax credits and a new application of the state’s sales tax onto cloud-based software programs.

Options market and stocks to watch

The software tax hits SaaS pricing power in the largest US state, and the health tax hits managed care margins. A few names traders may want on the radar:

ADBE: Adobe was called out by name as a product likely subject to the new sales tax treatment. Watch for demand elasticity commentary on the next call.

INTU: TurboTax was also named. California is a huge revenue base, watch for pricing or bundling responses.

CRM: Salesforce-owned Slack was cited. Watch how enterprise SaaS names frame the sales-tax pass-through to customers.

ELV and UNH: Newsom, in his May revise, unveiled a plan that sharply increased a state tax on managed care organizations: private health insurance companies like Anthem, United Healthcare or Kaiser. Watch premium guidance and California book commentary.

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