Legislative Analyst's Office: California Economy & Taxes Blog

The 2026-27 Budget: Sales Tax on Prewritten Software

Sat, 16 May 2026 15:23:03 GMT

The Governor proposes extending the state’s sales tax to sales of prewritten software broadly, no matter how the software is delivered. We see merit in the general idea of modernizing the state’s sales tax and eliminating some of the arbitrary distinctions between taxed and untaxed sales. If the Legislature wants to address these issues, we recommend that it consider extending the sales tax to a broader set of digital products, not just software. We also recommend that the Legislature consider exemptions or reduced rates for software purchased by businesses.

Monthly Jobs Report (January, February, & March)

Fri, 15 May 2026 09:43:25 GMT

State Employment Figures Looking Less Negative to Start 2026. Preliminary figures for January, February, and March hint at an overall job growth trend that is slightly less negative, most notably in the government, business services, and construction industries. Additionally, the annual benchmark revision modestly brightened the state's gloomy 2025 annual job growth picture (from -11k jobs to +57 jobs) despite revising national job growth down from +584k to +116k. Taken together, the revised 2025 figures and early-2026 data suggest a less negative picture than previously reported but not yet a meaningfully different one.

California New Car Registrations: March 2026

Fri, 08 May 2026 10:10:41 GMT

Slump in Registrations Continued Through March. Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025. After this substantial drop, registrations have not yet recovered—in fact, they declined an additional 1 percent from December to March. This slump is becoming an increasingly worrisome sign for California’s short-term economic trajectory.

Income Tax Withholding Tracker

Fri, 08 May 2026 10:00:03 GMT

Income tax withholding in April came in $1 billion (11 percent) above projections included in the January Governor's Budget and 22 percent higher than last year. Year-over-year growth in April likely got a one-time boost from collection day timing issues and a relatively weak month during April 2024, when the stock market dipped for a short period.

Updated "Big Three" Revenue Outlook (May 2026)

Thu, 07 May 2026 09:35:05 GMT

Revenues Are Surging but Appear Unsustainable. Our updated forecast of revenues from the state’s three largest taxes (income, corporation, and sales) shows a $25 billion upgrade over the Governor’s Budget across the budget window (prior year to budget year.) This upgraded outlook is almost entirely attributable to higher expectations for income tax collections, which are being driven by enthusiasm around AI and the related stock market boom. As such, we continue to caution that these surging revenues likely are not sustainable. This suggests it would be prudent to approach the state budget as if we are at or near a revenue peak.

California Housing Affordability Tracker (1st Quarter 2026)

Mon, 20 Apr 2026 10:36:27 GMT

Our post provides an updated snapshot of housing affordability in California. Over the last few years, we have seen a rapid increase in California housing costs, driven by a dramatic increase in home prices and mortgage rates between 2020 and 2022. Home prices have stabilized since 2022: current prices are roughly the same as they would have been if trends pre-pandemic had continued. Despite this, fewer California households can afford to buy a home today than before 2020.

Prices are unlikely to decline if existing homeowners--or new builders--are unwilling to sell their homes at prices prospective buyers can afford. One factor is the rapid increase in mortgage rates in 2022. After the increase, most existing homeowners are "locked-in" to mortgages with rates significantly lower than currently available. About 77 percent of California homeowners have mortgage rates under 5 percent, compared to current rates of about 6.2 percent. These homeowners face a significant additional financial cost to moving, further limiting the number of homes available for sale. This dynamic may explain why home sales remain low despite an increase in the number of homes listed for sale in 2024 and early 2025.

New IRS Data Show Pandemic Outmigration Eased in 2023

Fri, 17 Apr 2026 09:39:04 GMT

Recently released figures from the Internal Revenue Service (IRS) show that California continues to lose taxpayers to other states. The state has long had annual net outmigration (more people moving out of California to other states than moving in) but the trend increased notably for 2020, 2021, and 2022. The newly released 2023 figures show that pandemic-era outmigration has eased, though it remains elevated by historical standards.

California New Car Registrations: February 2026

Tue, 07 Apr 2026 11:52:39 GMT

Slump in Registrations Continued Through February. Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025. After growing just 1 percent from December to February, registrations are still 5 percent below the average level over the last couple of years. This slump is becoming an increasingly worrisome sign for California’s short-term economic trajectory.

California New Car Registrations: January 2026

Wed, 11 Mar 2026 10:13:47 GMT

Seasonally adjusted new car registrations dropped 8 percent from September 2025 to December 2025. After essentially moving sideways from December to January, registrations are still 5 percent below the average level over the last couple of years. This multi-month slump could be a worrisome sign for California’s short-term economic trajectory.

How Have Past Stock Market Downturns Affected Income Tax Revenue?

Mon, 09 Mar 2026 13:39:48 GMT

Major Stock Market Downturns of the Past Have Set Off Multi-Year 30 Percent Drops in Income Tax Revenue. Stock market downturns pose significant but uneven risks to California's income tax revenues. Smaller, short-lived downturns typically cause little lasting damage, but major downturns have led to 30 percent revenue drops that lasted three years. The state faces heightened risks today given the concentration of California-based tech companies whose stock prices have been driving the market to all-time highs.

Cannabis Tax Revenue Update (2025 Q4)

Thu, 26 Feb 2026 13:36:51 GMT

The administration currently estimates that retail excise tax revenue was $145 million in the fourth quarter of calendar year 2025 (October through December). With this latest data, we currently project cannabis tax revenues of $648 million in 2025-26. This is $36 million above the January Governor’s Budget forecast for 2025-26.

Updated "Big Three" Revenue Outlook

Fri, 20 Feb 2026 13:21:53 GMT

Near-Term Revenue Outlook Improved but Future Challenges Remain. Our updated forecast anticipates revenues from the state’s three largest taxes (income, corporation, and sales) are likely to come in ahead of Governor’s Budget assumptions in the current year and about in line with assumptions in the budget year. This upgraded outlook is entirely attributable to higher expectations for income tax collections, which are being driven by enthusiasm around AI and the related stock market boom. As such, we continue to caution that these surging revenues likely are not sustainable. Our revenue outlook for 2027-28 and beyond remains similar to our November Fiscal Outlook, continuing to reflect the high risk of a revenue reversal. Under these revenues, our Fiscal Outlook estimated that the state would face structural deficits of around $35 billion annually starting in 2027-28.

The 2026-27 Budget: How to Use One-Time Revenue Improvements

Fri, 20 Feb 2026 13:21:32 GMT

Recent stock market performance continues to boost income tax collections. In our Fiscal Outlook, we strongly advised the Legislature to treat near-term strength in tax collections as temporary because we expect these gains to reverse. Further, the state faces significant structural deficits in the future. Accordingly, any windfall received from this revenue uptick represents an opportunity for the Legislature to prepare for future fiscal challenges.

Inflation Tracker

Fri, 20 Feb 2026 13:21:16 GMT

December data for the US show annual inflation remained above pre-pandemic averages with the downward trend seen since mid-2022 stalling. While a lapse in appropriations for the Bureau of Labor Statistics (BLS) during October and November 2025 led to concerns about the accuracy of November and December inflation statistics, estimates suggest similar inflation levels to previous months. Between December 2024 and December 2025, prices for US consumers grew by 2.7% and prices for CA consumers grew by 3.2%. However, it is likely that wage growth exceeded inflation in 2025. Growth in the price of consumer goods seen in early and mid-2025 has largely reversed, with goods prices falling slightly between January 2025 and January 2026. Consumer expectations about inflation in the next one to five years spiked in early 2025 but have since declined, nearly to pre-2025 levels.

Firearms and Ammunition Revenue Update (2025 Q4)

Wed, 18 Feb 2026 13:26:15 GMT

For firearm and ammunition excise tax returns filed for the fourth quarter of 2025, the total amount of tax due is $16 million.

California New Car Registrations: December 2025

Mon, 09 Feb 2026 12:58:29 GMT

Registrations Fell Slightly in December. Seasonally adjusted new car registrations declined by 1 percent in December. After three weak months, registrations are now 5 percent below the average level over the last couple of years.

California New Car Registrations: November 2025

Tue, 06 Jan 2026 12:02:15 GMT

Registrations Dropped in November. Seasonally adjusted new car registrations declined by 4 percent in November. After two weak months, registrations are now 4 percent below the average level over the last couple of years.

2025 Update: Tech Company Stock Pay Accounts for One-Quarter of Withholding Growth So Far in 2025-26

Wed, 03 Dec 2025 14:08:45 GMT

California's technology companies, including Apple, Google, Nvidia, Meta, and Broadcom are the most valuable companies in the world and employ thousands of highly-paid workers in the state. Many employees at these companies receive equity pay, such as stock options and restricted stock units, in addition to their base salary. As we first pointed out two years ago, state income tax withholding on stock pay has grown to more than $10 billion annually due to the AI boom in asset prices for these companies. With updated data through 2025Q3, we now believe growing withholding from these sources accounted for a quarter of the strong income tax withholding growth seen in the first three months of 2025-26.

California New Car Registrations: October 2025

Wed, 03 Dec 2025 10:47:31 GMT

Registrations Dropped in October. Seasonally adjusted new car registrations declined by 2.4 percent in October. October registrations were 5 percent lower than recent peaks in December and April but slightly higher than the average level over the last couple of years.

Cannabis Tax Revenue Update (2025 Q3)

Tue, 02 Dec 2025 12:45:19 GMT

The administration currently estimates that retail excise tax revenue was $177 million in the third quarter of calendar year 2025 (July through September). This is the highest quarterly total since the state eliminated the cultivation tax. With this latest data, we currently project cannabis tax revenues of $631 million in 2025-26, nearly $100 million below the budget assumption for 2025-26.

Firearms and Ammunition Revenue Update (2025 Q3)

Tue, 18 Nov 2025 14:46:36 GMT

Beginning July 2024, Chapter 231 of 2023 (AB 28, Gabriel) imposed an 11 percent excise tax on retail sales of firearms, firearm precursor parts, and ammunition, with some exemptions. Current tax return data suggest that the revenues from this tax will total around $58 million for 2024-25. Further, tax returns filed for the third quarter of 2025 show total tax due of $13 million—slightly below the quarterly average in the first year of the program.

California New Car Registrations: September 2025

Fri, 14 Nov 2025 09:19:58 GMT

Registrations Flat in September. Following three straight months of substantial growth, seasonally adjusted new car registrations grew just 0.1 percent in September. This is 3 percent lower than recent peaks in December and April but somewhat higher than the average level over the last couple of years.

California New Car Registrations: August 2025

Tue, 07 Oct 2025 11:24:16 GMT

Third Straight Month of Growth. Seasonally-adjusted new car registrations grew 1.6 percent in June, 1 percent in July, and 5 percent in August, but they remain 3 percent lower than recent peaks in December and April. Sales are now somewhat higher than the average level over the last couple of years.

California Labor Market Showing Broad Signs of Weakness

Tue, 30 Sep 2025 11:10:01 GMT

The state's topline jobs report paints a worrisome picture about the labor market: businesses have shed 20,000 jobs so far this year and more workers report being unemployed. This post brings in new data, including a rise in layoffs and the number of long-term unemployed workers, moderating recent wage growth, and a hiring slowdown in one key growth sector (government jobs), that show broader signs of softness and raise the possibility that the labor market has weakened further in the past few months.

Cannabis Tax Revenue Update (2025 Q2)

Mon, 15 Sep 2025 13:59:10 GMT

For cannabis excise tax returns filed for the second quarter of 2025, the total amount of tax due is $147 million. With this latest data, we currently project cannabis tax revenues of $603 million in 2024-25 and $773 million in 2025-26.