California Gov. Gavin Newsom has proposed a proposal to expand the state's sales tax into cloud software, AI platforms and digital applications, a move that is projected to generate over $1 billion in its first year and reshape how the digital economy is taxed. The proposal does not create a new standalone surcharge but broadens California's existing sales tax system to apply more consistently to software products sold online. The majority of the impact will be on business-to-business software transactions, accounting for roughly 75% of the projected economic effect. However, consumer-facing subscriptions could see higher costs if the proposal becomes law, including those of platforms such as Microsoft 365, Adobe Creative Cloud, Slack, QuickBooks Online and enterprise AI systems. The move is part of ongoing budget negotiations and requires approval from the California Legislature before it can become law.