This article is for informational purposes only and does not constitute tax, legal, or accounting advice. Consult a qualified tax professional before making compliance decisions.

Policy

Where Does an Agent 'Use' Software? California's SB 122 Sourcing Workshop and the Situs Problem for AI Agents

Beardsley Rumble|2026-07-21|5 min read

On July 21, 2026, the California Department of Tax and Fee Administration convenes its first public workshop on sourcing and place-of-use under S.B. 122, the trailer bill that makes prewritten software and SaaS taxable in California beginning January 1, 2027. When we covered the signing on June 29, we said the story had shifted from the legislature to the agency, and that the single most important open question was how remote-access situs is sourced when a buyer and seller sit in different states. That question is now on the table. For an autonomous AI agent — a process with no office, no fixed location, and a footprint that can touch all fifty states in a single billing cycle — it is the hardest question in the statute.

The Sourcing Question the Statute Left Open

S.B. 122 tells you that remotely accessed prewritten software is taxable. It does not cleanly tell you where the sale occurs. For tangible goods, sourcing is intuitive: the sale happens where the goods are delivered. For software you never take possession of — software you merely reach over the internet — "delivery" is a legal fiction, and states resolve it differently.

California's default approach begins with the purchaser's address: the billing address first, and other customer address information if the billing address is inadequate. That works acceptably when a customer buys software and uses it in one place. It works poorly when the software is billed to one state and used across many. And critically, California's statute does not provide the kind of broad, express multiple-points-of-use (MPU) election that Texas offers, which would let a buyer allocate a single software purchase across the states where it is actually used. S.B. 122 includes place-of-use language and hands the CDTFA authority to fill in the details by regulation, but the mechanics — how to allocate, what documentation supports an allocation, whether an MPU-style election exists at all — are undefined today. That gap is precisely what the July 21 workshop exists to address.

Why Agents Break the Billing-Address Model

Billing-address sourcing assumes a stable relationship between where a customer is billed and where software is consumed. Autonomous agents dissolve that assumption. Consider a concrete stack:

The software input (a model API, a data product, a hosted tool) is billed to a company headquartered in one state.

The agent runtime executes on cloud infrastructure in a second state.

The principal the agent acts for is domiciled in a third.

The end customers the agent serves are scattered across all the rest.

Where is that prewritten software "used"? Billing-address sourcing would assign the entire transaction to the headquarters state, which may be where none of the actual computation or benefit occurs. A place-of-use rule points at the cloud region — an artifact of infrastructure provisioning that an operator can change with a config flag, and that has nothing to do with the economic substance. Neither answer is obviously right, and the difference is not academic: it decides which state's rate applies, whether district taxes stack, and whether the same dollar of software cost gets taxed once or several times.

This is the agent-specific edge of a problem every multistate software buyer now faces in California. The difference is degree. A human enterprise has users you can count and locate. An autonomous agent that provisions a dozen SaaS tools on its own has a use footprint that is diffuse by design, and no natural situs to anchor to.

The Double-Tax and Over-Tax Risk

The absence of a clear MPU election is the part that should worry operators. Without an allocation mechanism, the conservative default is to source the full purchase to a single state — likely the billing address — and tax the whole amount there. If another state where the software is genuinely used also asserts tax on the same input (through its own use-tax regime), the operator can face tax on the same dollar in two jurisdictions with no clean credit path. Over-reserving is uncomfortable; being taxed twice with no allocation record to defend against either assessment is worse.

Our comfort level here is deliberately low. The enactment of S.B. 122 is settled — it is law, effective January 1, 2027. The sourcing and place-of-use treatment of remotely accessed software for a distributed agent is not settled; it is pending CDTFA rulemaking, and today's workshop is the opening move, not the conclusion. We will not characterize as fixed anything the agency has not yet written down.

What Agent Operators Should Do Now

You cannot source a transaction you did not record. Six months out from the effective date, the useful work is building the evidentiary base that any future allocation rule will demand:

Capture purchaser and billing address for every taxable software input your agent provisions, at the transaction level. This is the anchor California starts from regardless of how the place-of-use rules land.

Document your actual use footprint. Where does the runtime execute? Where is the benefit realized? If an MPU-style allocation becomes available, you will need contemporaneous records to support it — reconstructing them after an assessment is a losing exercise.

Watch for the workshop output and the draft emergency regulation. The July 21 session should signal the CDTFA's direction on place-of-use and whether any allocation election will exist. That draft text, when it lands, is the development that converts this analysis into a rule.

Do not assume the pre-2027 answer carries forward. Through December 31, 2026, California does not tax SaaS at all. On January 1, 2027, sourcing becomes a live question for every remotely accessed software dollar in your stack.

If you are mapping which of your agent's software inputs become taxable in California and how they should be sourced, that is exactly the classification and situs problem AgentTax is built to model — including the effective-dated flip on January 1, 2027.

What to Watch Next

The workshop is the start of a two-year emergency rulemaking window, not the end of it. The signals that matter: whether the CDTFA adopts a billing-address rule, a place-of-use rule, or some hybrid; whether it creates an MPU-style allocation election; and how it defines the documentation a buyer needs to support an allocation. Each of those determines how the tax actually falls on a cross-border agent transaction far more than the statute does. We will be reading the draft regulation the moment it publishes.

This analysis is for informational purposes only and does not constitute legal or tax advice. Consult a licensed tax professional for compliance decisions.