Senate advances budget package, approves software sales-tax expansion and MCO tax amid pointed debate

The California State Senate on Friday approved several budget-related trailer bills after extended floor debate, including a measure that would extend sales tax to electronically delivered prewritten software and a separately passed bill to impose a new managed-care organization (MCO) tax.

Senator Laird, the bills’ floor sponsor, described Senate Bill 122 as a revenue measure that modernizes the sales-tax base by applying tax to electronically delivered prewritten software beginning Jan. 1, 2027, extends a temporary business tax credit cap for three years and creates a long-term minimum tax limit for large profitable corporations. He said the package, together with enacted budget bills, helps prevent deeper cuts and supports investments in health care, child care and affordable housing.

Opponents pushed back sharply. Senator Nilo said the amendments were “unacceptable” and warned the software tax would amount to taxing labor and could harm research-and-development incentives; Nilo cited a constituent estimate from Sutter Health of roughly $35 million in additional costs tied to the proposals. Senator Choi argued the software-sales expansion would raise costs for hospitals and small businesses that rely on digital tools. Senator Strickland and Senator Grove called out affordability concerns and warned of a future structural deficit if broad new taxes are enacted.

Senator Wiener defended SB 122 as a modernization of the tax base in a digital economy and estimated it will generate about $1 billion a year for local governments. After closing remarks by Senator Laird, the roll call on SB 122 recorded Ayes 27, Nos 9 and the measure passed.

The Senate also took up Senate Bill 125, a trailer bill creating a federally compliant MCO tax to replace an earlier structure invalidated by federal action. Senator Laird said the bill assesses a uniform charge per health-plan enrollee (described on the floor as about $8.85 per month per enrollee), with proceeds covering Medi-Cal costs and producing projected general fund savings of $575 million in the budget year and larger savings at full implementation. The measure passed on the floor vote (Ayes 27, Nos 9).

Earlier the chamber concurred in Assembly amendments to Senate Bill 110, a technical budget bill, after debate and a roll-call vote (Ayes 29, Nos 10).

All three votes were formal roll-call actions recorded by the secretary. Members opposing the package raised affordability and provider-cost transfer concerns; supporters said the revenue changes were necessary to protect health and social services amid federal reductions.

What’s next: The bills will proceed through the remaining steps required for enactment (enrollment, transmission to the Governor, and any further administrative implementation).