California Issues Guidance on Taxability of Cryptocurrency

The California Department of Tax and Fee Administration (CDTFA) has issued guidance on the sales and use tax treatment of cryptocurrency. The CDTFA’s guidance references guidance from the IRS regarding cryptocurrency, namely that digital assets include (but are not limited to):

        • Convertible virtual currency and cryptocurrency
        • Stablecoins
        • Non-fungible tokens (NFTs)

Quoting the IRS guidance, the CDTFA guidance goes on to say that digital assets are not real currency because they are not coin and paper money and are not digitally issued by a government’s central bank. A digital asset that has an equivalent value in real currency or acts as a substitute for real currency is referred to as convertible virtual currency. Cryptocurrency is an example of a convertible virtual currency that can be used as payment for goods and services, digitally traded between users, and exchanged for or into real currencies or digital assets.

The CDTFA’s guidance concludes that in general, California sales and use tax applies to tangible personal property. If no tangible personal property is transferred in a transaction, then there is no “sale” under California sales and use tax law. Therefore, California sales and use tax does not apply to cryptocurrency transactions (the buying and selling of cryptocurrency).

(Reference #F22-12-084, California Department of Tax and Fee Administration, January 5, 2023)

Posted on January 27, 2023