Californians To Be Hit With Hefty Healthcare Tax Among Two New Taxes Signed By Newsom

California’s freshly signed budget includes two new taxes that Golden State residents will have to contend with when considering their own bottom lines.

Expected to generate billions in the coming years, the taxes — a managed care organization tax on health plans and a sales tax on software — are both anticipated to go into effect Jan. 1, 2027.

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The taxes were announced Monday, along with California’s 2026-27 budget, which Gov. Gavin Newsom’s office in a news release said, “continues California’s commitment to investing in opportunity while maintaining long-term fiscal discipline.”

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.

'Increasing Health Care 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.

The law is expected to generate $575 million in 2026-27, $2.3 billion in 2027-28 and 2028-29, and $1.7 billion in 2029-2030, the state finance department confirmed.

The California Association of Health Plans, in a news release, expressed concern about “a $1.5 billion tax increase on commercial health coverage that will raise premiums by more than $400 a year for a family of four.”

“Previous MCO taxes were designed to strengthen Medi-Cal while protecting affordability for Californians with commercial coverage,” the news release said.

“This decision breaks from that model by significantly increasing health care premiums on hardworking Californians to help backfill the state general fund.”

Before it was signed into law, the bill faced opposition in the California Senate.

“They say that two things are certain in life. Death and taxes. However, Californians are being taxed to death,” Republican state Sen. Suzette Martinez Valladares told ABC10.

A New Sales Tax

The software tax would define prewritten computer software as “tangible personal property” subject to sales tax. California has a sales tax rate of 7.25 percent.

The law is anticipated to bring in $450 million in 2026-27, growing to $900 million in 2029-30 at the state level alone, while also adding hundreds of millions of dollars annually in local sales tax revenue.

“At first glance, it may sound like a narrow tax on technology,” Robert Gutierrez, president of the California Taxpayers Association, wrote in an opinion piece published by The Orange County Register.

“But a closer look shows it would reach far beyond the tech sector and quietly increase costs throughout the economy, making life more expensive for California families."

The tax significantly shifts how digital technology is taxed, according to the Legislative Analyst's Office.

"Over time," the state's nonpartisan fiscal and policy advisor noted, "the economic importance of tangible goods has declined, outpaced by growth in services and digital products. This trend has weakened the link between consumption and California’s sales tax base."

"A growing share of consumption falls outside of the sales tax base," the Legislative Analyst's Office concluded in recommending that lawmakers modernize the state’s sales tax.