Ask The California Employment Tax And Payroll Tax Attorney – How California Taxes Crypto Currency Transactions

By Robert S. Schriebman
2023

Introduction

The California Department of Tax and Fee Administration is referred to as the CDTFA.  The CDTFA is composed of the Franchise Tax Board and the Sales and Use Tax Division known as the CDTFA.  Yes, it is a bit confusing.

The CDTFA recently issued two position papers governing the taxability of crypto currency transactions.  Crypto currency is also known as a digital asset.

Digital assets are broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.

Digital assets include (but are not limited to):

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

Digital assets are not considered real currency because they are not the coin and paper money of the United States or a foreign government.

Exchanges Solely of Crypto Currency

California sales and use tax applies only to the sale or use of tangible personal property.  When there is no tangible personal property transferred in a transaction, there is no “sale” under California law.  Therefore, sales and use tax will not apply to crypto currency transactions.  That is to say, that exchanges of crypto currency, by themselves, do not constitute a taxable event triggering the recognition of gain or loss.  January 5, 2023, CDTFA Reference # F22-12-084

Exchange of Crypto Currency for Tangible Personal Property

On January 19, 2023, the CDTFA issued a Memorandum giving its opinion on the sale or exchange of crypto currency for tangible property.  Crypto currency is not considered United States legal tender; rather crypto currency is considered property.  When crypto currency is exchanged for tangible personal property, it meets the definition of a “sale” for sales and use tax purposes.  January 19, 2023, CDTFA Reference # F22-12-084FU

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.  Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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