California – AB 129 Brings Virtual Currency Into The Legal Fold Of California Commerce

SALT Report 3401 – Enrolled June 24, 2014, CA AB 129 removed California Corporations Code Section 107 stating that it is no longer necessary given that Section 107 was essentially dormant and could potentially limit the development of virtual currencies.  The BOE also takes this opportunity to remind taxpayers that transactions involving virtual currencies are still taxable.

AB 129 states:

“The concept contained in Corporations Code Section 107 originates with California’s first Constitution, adopted in 1849.  That constitution prohibited the creation and issuance of paper to be used as money by any bank – an attempt to ensure that only the federal government could issue lawful currency.  During a series of revisions to California’s Constitution in the early 1970s, the prohibition against placing currencies other than lawful money of the United States into circulation was placed in the Corporations Code.  It has remained there ever since, essentially unchanged.”

The bill goes on further:

“Although it appears that no state department or agency has ever initiated an enforcement action for a violation of Corporations Code Section 107, this bill’s author is concerned that Corporations Code Section 107 may restrict the development and use of alternate currencies.  Alternative currencies include virtual currencies such as Bitcoin, Ripple, Peercoin, Primecoin, and others, and community currencies, such as Davis Dollars, Sonoma County Community Cash, Bay Bucks, and others.”

As this bill goes into effect the California Board of Equalization takes the opportunity to remind taxpayers that transactions involving virtual currencies are still subject to tax.

The BOE Special Notice states:

“Businesses and individuals who accept virtual currencies as a payment method should be aware that sales and use tax applies to such transactions in the same manner as transactions paid using traditional payment methods such as cash or credit card”

For Further Information:

BOE Special Notice June 2014 – Accepting Virtual Currency as a Payment Method

AB 129

California governor signs bill to bring bitcoin and other currency into fold – Reuters June 28, 2014