WATCH: Senate OKs taxes on digital software, managed care

Valladares and other Republican senators’ opposition centered around two bills – Assembly Bill 122, which establishes a tax on digital software, and Assembly Bill 125, which levies a tax on managed health care organizations. 

Assembly Bill 122 passed 27 to 9, and Assembly Bill 125 passed 27 to 8, along party lines in both cases. The Senate made amendments to both bills, which means the legislation will need to be reviewed again by the Assembly.

Lawmakers who spoke out against the managed health care bill said on Thursday on the Senate floor that the tax will make healthcare more expensive for providers and patients.

Sen. Roger Niello, R-Fair Oaks and vice chair of the Senate Budget and Fiscal Review Committee, advocated against the software tax legislation in particular, noting that there was nothing to stop the Legislature from taxing the manufacture or labor on other products.

“Go ahead and tax software development, which is essentially taxing labor that develops a product,” Niello told senators. “So while we’re at it, maybe we can consider taxing the labor on a major air conditioner repair.”

Assembly Bill 125, the measure that would impose a tax on managed health care organizations, aims to generate revenue that would pay for Medi-Cal services. Managed health care is already taxed under Proposition 35, a measure California voters approved in 2024. According to a November 2024 report from the Legislative Analyst’s Office, the tax proposed by Proposition 35 made permanent a previous tax that required approval every few years from the Legislature.

However, the managed care tax passed in 2024 violated provisions of the One Big Beautiful Bill Act. That federal budget package passed during summer 2025.

The new managed care tax approved Thursday by the Senate seeks to not only align the state’s tax with federal requirements, but save the general fund $575 million during fiscal year 2026-27, $2.3 billion in 2027-28 and $1.7 billion in 2029-30, according to a legislative analysis.

Despite efforts to reduce general fund expenditures on Medi-Cal, Republican legislators on the Senate floor voiced strong opposition to the bill.

“Go ahead and violate the spirit of Proposition 35, and implement an MCO [managed care organization] tax that will actually end up increasing the costs of healthcare for just about everybody,” Niello said, opposing Assembly Bill 125.

Sen. John Laird, D-Santa Cruz and chair of the Senate Budget and Fiscal Review Committee, said on the Senate floor that the revenue generated by the software tax would pay for education and healthcare services that have been the victim of significant federal budget cuts after the passage of the One Big Beautiful Bill Act.

“These revenue changes were assumed in building our 2026 budget,” Laird told senators. “While the package is not our first choice for new revenues, I am proud that the Senate led the way for our Assembly and administration colleagues to explore revenue options as part of a balanced approach.”

“This is about responsibly budgeting for the future of California,” Sen. Christopher Cabaldon, D-Napa, said on the Senate floor. “We cannot count on the day-to-day stock market. We have to have a stable tax system in this state.”

Also on Thursday, lawmakers remarked on the upcoming holiday Juneteenth on Friday. According to the National Museum of African American History & Culture, the Juneteenth holiday commemorates the emancipation of Black slaves in the United States.

While President Abraham Lincoln’s Emancipation Proclamation declared all slaves in the country free on Jan. 1, 1863, many areas in the South – still a Confederate stronghold – postponed freedom for many enslaved Black Americans still in that part of the country. On June 19, 1865, freedom was declared for those still living in enslavement in Texas by Union soldiers in Galveston Bay, as reported by the museum.

“Juneteenth commemorates the end of an atrocity,” Sen. Akilah Weber Pierson, D-San Diego, said on the Senate floor. “For generations, Black families were bought and sold, separated from loved ones and denied control of their lives. Juneteenth reminds us that freedom is not something that we should ever take for granted.”

Notably, this week, Senate President Pro Tempore Monique Limón, D-Santa Barbara, became the first Latina acting governor to sign legislation. Limón temporarily stepped in for California Gov. Gavin Newsom on Wednesday to sign four bills into law when Newsom left the state.