Will Ai Data Centers be collecting and paying Sales Tax on their product (information)?

[NorCalBusa]

I can't find anything that says they will or they won't. Any ideas? Reference if you find one please.

 

[N4teTheGreat]

It'll likely be taxed same as any other subscription services, which means state by state, apparently California just started taxing this...

And yes, I used AI to find out about taxing AI

• Non-Taxable or Changing States: California historically viewed pure SaaS as a non-taxable service, but following the passage of Senate Bill 122, California will begin applying sales tax to electronically delivered software and SaaS starting January 1, 2027. [1, 2, 3]

 

[berth]

Yea I asked this question in another forum, but didn't get a satisfactory answer.

Consider, when Ford builds a car in Kentucky, and sells it in California, where is the revenue recognized? Does KY get a cut of the sales tax? Does Detroit? I know CA does -- and they get it on the entire purchase price.

Does a vehicle plant pumping out millions of dollars of vehicles only pay property taxes to the city/county/state?

If I'm in CA and connect to a data center in Delaware, how is that accounted for? If I "pay by the token", and buy 1000 tokens of processing, does DE get a cut of that, or is it recognized in CA where the company is (or wherever).

I have no idea.

It just seems to be that dropping a data center that consume a large quantity of local resources, requires comparatively few employees per sq/ft of the facility (vs other industries), and, I guess only pay property tax, doesn't seem like a "good deal" to the city/county/state.

But, I don't know.

 

[NorCalBusa]

Yea I asked this question in another forum, but didn't get a satisfactory answer.

Consider, when Ford builds a car in Kentucky, and sells it in California, where is the revenue recognized? Does KY get a cut of the sales tax? Does Detroit? I know CA does -- and they get it on the entire purchase price.

Does a vehicle plant pumping out millions of dollars of vehicles only pay property taxes to the city/county/state?

If I'm in CA and connect to a data center in Delaware, how is that accounted for? If I "pay by the token", and buy 1000 tokens of processing, does DE get a cut of that, or is it recognized in CA where the company is (or wherever).

I have no idea.

It just seems to be that dropping a data center that consume a large quantity of local resources, requires comparatively few employees per sq/ft of the facility (vs other industries), and, I guess only pay property tax, doesn't seem like a "good deal" to the city/county/state.

But, I don't know.

Not when those same facilities consume hundreds of million gallons of water each year from the fresh water systems. I thought it was a typo and that they would recirculate the water in some sort of cooled loop. Oh hell no- fresh and roaring, one & done. Cha-ching.

 

[Blankpage]

Data centers are so large they should use that roof surface area to collect and store rainwater. If it ever rains

 

[Tally Whacker]

LOL No. AI is 100% built on theft.

 

[NorCalBusa]

What I wonder is "where is the touch point"?
Let's say the data center is where the taxable event occurs (as it leaves the facility and goes off to the recipient(s). Is sales tax determined at the point of that exit or at the point of arrival? Would data centers have such massive right offs (construction, connectivity, water, equipment, maintenance) that the tax would all be written off anyway?

I'm clearly not a tax guy nor played one on TV, anyone that is? I suspect these "rule decisions" aren't yet written.

 

[Butch]

The late wife was an attorney that did international tax. Added value is a metric to tax a country that is involved in production that spans multiple jurisdictions.
The AI answer for “taxing added value” was pretty good. If you are interested.

Additional legislation is probably required to address the specific topic of this thread.

 

[Dmitriy]

What I wonder is "where is the touch point"?
Let's say the data center is where the taxable event occurs (as it leaves the facility and goes off to the recipient(s). Is sales tax determined at the point of that exit or at the point of arrival?

You really think they will open their books just like that for reviewing... and taxing? Yea no....

Custom software would remain exempt

They will just make it 'custom' to every single user.... thats all.

 

[NorCalBusa]

You really think they will open their books just like that for reviewing... and taxing? Yea no....

They will just make it 'custom' to every single user.... thats all.

I don't think that's what or even close to what I said.

Try this; there's little doubt the IRS and their state brothers in arms, are likely noodling just how and how much tax they're getting for Christmas in the foreseeable future. But their Ai calculator broke when they started making up the formulas with even test amounts. Likely because if successful, Ai growth would slow way down.

 

[Dmitriy]

I don't think that's what or even close to what I said.

Try this; there's little doubt the IRS and their state brothers in arms, are likely noodling just how and how much tax they're getting for Christmas in the foreseeable future. But their Ai calculator broke when they started making up the formulas with even test amounts. Likely because if successful, Ai growth would slow way down.

You would have to prove that specific data center did the 'work' and like I said I doubt companies will be down to reveal much of that information....
It will very much be a LONG legal battle, dont think these tech companies are about to roll over to be tax just like that....

 

[berth]

Now its a question of them qualifying AI datacenters as a "streaming subscription", the current def may not be expansive enough for that.

 

[NorCalBusa]

View attachment 601343

That's helpful, thanks. Gave me a chuckle, Ai reporting on Ai.

View attachment 601344

You would have to prove that specific data center did the 'work' and like I said I doubt companies will be down to reveal much of that information....
It will very much be a LONG legal battle, dont think these tech companies are about to roll over to be tax just like that....

 

[two wheel tramp]

According to a bulletin I just received from the CDTFA, yes.

Sales and Use Tax Applies to Digital Products Beginning January 1, 2027​

Beginning January 1, 2027, the definition of tangible personal property in the Sales and Use Tax Law will be expanded to include digital products and any copyright or patent interests associated with those digital products. As a result, retail sales of digital products in this state or the storage, use, or other consumption in this state of digital products purchased from any retailer may be subject to sales and use tax.


This change is the result of a new law and generally affects:

• Sellers of prewritten computer software
• Prewritten Software-as-a-Service (SaaS) providers
• Businesses that license or provide remote access to prewritten software
• Purchasers of digital products

What is a digital product?​

A digital product is prewritten computer software transferred on tangible storage media, transferred electronically, or accessed remotely.


Prewritten computer software is computer software that is held or exists for general or repeated sale or lease, even if it was initially developed on a custom basis or for in-house use, including the combination of two or more prewritten programs.

What items are not digital products?​

The following items are not considered digital products under the new law:

• Digital assets (such as cryptocurrency)
• Digital audio works (such as music, spoken recordings, and ringtones)
• Digital audiovisual works (such as movies and videos with sounds)
• Digital books (also known as eBooks)
• Digital infrastructure (such as cloud platforms that allow customers to create, deploy, or run their own software applications)
• Digital video game products
• Digital visual works (such as computer-generated artwork)

What digital products are exempt?​

The following digital products are exempt under the new law:

• Digital products representing a service, not including SaaS
• Custom computer software
• Digital products transferred with reproduction and distribution rights
• Digital products purchased solely for use outside of California

Threshold rule that may shift tax liability from retailer to purchaser​

When the aggregate gross receipts from sales of digital products by a retailer to a purchaser that are transferred electronically or accessed remotely exceed $5 million in a calendar year or preceding calendar year, the tax liability may shift from the retailer to the purchaser. When this happens, the purchaser may be required to register for a Use Tax Direct Payment Permit and report the tax directly to us. Refer to our Tax Guide for Retailers and Purchasers of Digital Products for more information.

Place of sale and use of digital products​

For local and district tax reporting purposes, the place of sale of digital products transferred electronically or accessed remotely is generally the customer’s address, and the place of use is the place where the person accessing the digital product is located. Refer to our Tax Guide for Retailers and Purchasers of Digital Products for more information.

Registration​

Digital product sellers in California who are not currently registered with us must register for a seller’s permit, file sales and use tax returns, and report and pay tax on retail sales of digital products.


Out-of-state sellers of digital products engaged in business in this state as defined in Revenue and Taxation Code section 6203 must register with us for a Certificate of Registration—Use Tax, collect and report use tax from retail sales of digital products sold to California consumers, and pay the tax to us.


Our Online Services offers a convenient, fast, and free way to register online for a permit, license, or account.

Legislation information​

Senate Bill 122 (Stats. 2026, ch. 23) was signed into law on June 29, 2026.

For more information​

Please refer to our Tax Guide for Retailers and Purchasers of Digital Products. You may also call our Customer Service Center at 1‑800‑400‑7115 (TTY:711). Customer service representatives are available Monday through Friday from 7:30 a.m. to 5:00 p.m. (Pacific time), except state holidays.


To be added to our distribution list regarding upcoming interested parties meetings to discuss regulatory issues related to a specific topic, including digital products, or to all topics in general, please send your contact information to PPDD-BTC.InformationRequests@cdtfa.ca.gov.

 

[Abacinator]

That's....not clear to me