Do the SB 122 Math: Now is the Time to Act on eProcurement

If you’ve been on the fence about adopting a digital procurement solution, or if you’re currently evaluating new platforms against your current system, California's SB 122 just put a hard deadline on your search.

Whether you haven’t adopted eProcurement at all and are still making manual processes and emails work, or whether you’re not sure your current system is the right fit and are wondering what else is out there, the new sales and use tax on software means waiting will cost you even more.

Starting January 1, 2027, California sales and use tax will apply to prewritten software and SaaS (software as a service) solutions, including eProcurement tools. The law, signed June 29, 2026, does not include any exemptions for government agencies, which means you will pay anywhere from 7.25% to 11.75% tax, depending on your jurisdiction, for any software contracts you complete in 2027 or beyond.

That tax will apply to the contract price of the software at signing and for every renewal, which makes finding a solution before the clock strikes midnight on New Year’s Eve a budget priority. The stated term of the contract and the date of delivery of service will determine whether the software is taxable. (The contract must have a term start date before January 1, 2027, and the agency must take delivery of the system on or before December 31, 2026 for tax exemption.)

Don’t Have a System Yet?

The recurring cost of manual processes is often overlooked. Building solicitations from scratch, emailing and calling vendors, maintaining spreadsheets, and searching for paper documentation all take up valuable time that a busy procurement team doesn’t have to spare, especially when tight budgets mean there’s no availability to hire another role.

Digital procurement solutions automate time-consuming manual tasks, with approved solicitation templates, digital vendor communication and management, centralized document storage and tracking, and one-click reporting that help save your team time while also eliminating errors and improving transparency and defensibility.

So, while a digital solution may cost your agency up front, in the long run, more competition, reduced protest and compliance risk, and improved efficiency will mean better use of funds for your taxpayers, especially if you sign on the dotted line before January 1.

Not convinced? Compare the cost of running solicitations now to a tax-inclusive digital procurement subscription over a contract term:

• Estimate how many hours per month your team spends on repetitive steps like building solicitations, answering vendor calls, tracking down certificates, or scoring bids, then multiply by your loaded staff cost.
• Count the solicitations in the past year that needed addenda, corrections, or reissue, and the time each took.
• Note where documentation or certificate gaps would be hard to defend in an audit.

Then compare that total to an eProcurement contract over, say, a three-year period. PlanetBids has an ROI calculator that lets you run this figure with your own staffing and volume to see how much you can save, with hours going back into evaluating proposals, building vendor relationships, and managing contracts.

If You Already Have a Solution

Many agencies that already have a procurement tool of some kind may have previously been wondering if now is the time to change or evaluating other options. With SB 122, putting off switching vendors and platforms may seem like a smart move – why make changes and face the possibility of paying a new tax?

But if you're paying too much, not happy with your current system, or are building out numerous workarounds to make it fit, you could be better off switching.

There are a few ways to evaluate whether a move right now would be smart for your agency:

If you have a free tool or a basic system

Obviously, a free procurement tool doesn’t have a tax today and won’t on January 1, so moving from this to a paid platform would incur a hit to the budget. The case for moving has to hinge on what you would gain from a broader and more robust platform.

Analyze the work you’re currently performing in the system versus what is done outside of it. If it’s simply a bid listing site or a low-use portal and you’re still building solicitations, managing spreadsheets, and fielding vendor communications the old-fashioned way, “free” might actually be costing you time and money.

If you have a larger eProcurement platform

If you currently run on a larger eProcurement platform or ERP, SB 122 will affect you in two ways. First, your next renewal will be quoted with tax on the contract price. A higher-priced platform will also mean a higher tax bill.

Second, an over-powered system that requires heavy customization, or an ERP that has procurement addition bolted on as an afterthought might cost more than they’re worth, especially if you’re still having to create workarounds or leaving high-cost modules unused.

A larger system can be the right fit, and you should keep it if it is. But if the cost or fit has been a concern, evaluate your usage against the annual cost, then compare it to other dedicated procurement systems to see whether a change in platform could save your team headaches and save your budget dollars.

Before deciding anything, pull your contract and confirm the renewal date, the notice required to not renew, and any early termination requirements. Have your agency counsel review them, and do not end a contract early without that review.

If your renewal falls in 2027, the notice window may be coming up, and a tax-inclusive quote is a logical and low-pressure way to start the conversation about the upcoming tax, as well as to compare your next contract to other suppliers and see what you could save year over year.

Questions to Ask Any Vendor:

• How will existing vendor records, solicitations, and documents move to the new platform, and on what timeline?
• How long will implementation and training take, and what’s the timeline to “take delivery” of the system?
• Will your agency need to run both systems for a period, and how are overlapping terms treated for tax? Consult with your agency counsel as well.
• How will software, implementation, training, and support be itemized in writing?

Why Now?

• Time is of the essence. A pre-January 1 contract term start date and delivery of service date will give agencies a tax advantage that post-January 1 contracts will not have.
• Tax refreshes comparisons. Every platform you evaluate and every contract you renew will be priced to include the tax, making now a natural time to compare cost and fit side-by-side.
• Switching takes time. Notice periods, reviews and approvals, and contract signing can take longer than expected, which means it’s easier to start these before the busiest solicitation months, rather than during them.
• Waiting isn’t free. Manual work and unaddressed documentation risk continue to accumulate costs while decisions sit.

Working Through the Common Barriers

“The budget isn’t there.”

Ask your finance office whether funds already appropriated for this fiscal year can cover a subscription to a new platform, and what approval a new contract needs at your spending level. Build the case on the tax-inclusive total over the contract term, not the first-year fee, or make the case for signing the contract before January 1 to take advantage of the non-taxed total contract amount for the entire term and save on future budget years.

“Approvals won’t move fast enough.”

Map your approval path now, including who must sign, whether your governing body must review, when the next agenda deadline falls, and how long legal review will take. Work backwards from December 31, allowing time for both execution and payment. Ask your agency counsel whether an existing contract vehicle your agency is authorized to use, like a cooperative or piggyback contract, could shorten the timeline.

“Our current setup works well enough.”

It may, but the question is at what cost. Put a number on the staff time, the risk, and the rework, then compare it against a tax-free and tax-inclusive subscription cost for your desired platform.

Start Evaluating This Week

1. List your existing processes and solutions and analyze how much time you’re taking and what work is done manually or outside of the solution.
2. If you have an existing contract, confirm the renewal date, notice period, and termination terms, and have counsel review them.
3. Map your approval path and calendar, including implementation timing.
4. Ask finance to confirm your local tax rate at cdtfa.ca.gov.
5. Request itemized pricing in writing from every vendor you’re considering.
6. Talk with a team that can answer contract and compliance questions as they come up.

Why PlanetBids

PlanetBids is designed, developed, and serviced in California, and we have supported California agencies for more than 25 years. Our platform was built by former procurement professionals for public agencies in the most highly regulated state in the U.S., and our team includes former government and procurement professionals. Our role does not end at the signature. We will help you understand how CDTFA guidance affects your contract and work through compliance questions alongside your agency counsel for the life of your contract.

Our end-to-end lifecycle platform helps teams like yours automate and streamline every step of the procurement process, from request and solicitation creation and review to bid acceptance, evaluation, and award. With solutions for any agency size and budget and an implementation and training process that gets teams up and running in just a few weeks (or a few days!), we are proud to be the best in breed built specifically for local and regional public agencies.