Introduction
As NFTs continue to surge in popularity in 2025, the California Department of Tax and Fee Administration (CDTFA) has sharpened its position: certain NFT transactions may now trigger sales tax obligations.
This guide covers royalty income, marketplace facilitation rules, and how NFT creators, resellers, and buyers should navigate California’s sales tax framework.
IRC and California Code References
- IRC §61(a) – Royalties and gross income
- IRS Notice 2023-34 – Digital asset definitions (context only)
- Cal. R&TC §6006 – Definition of “sale” for CA sales tax
- CDTFA Special Notice L-873 (2024) – NFT sales tax clarification
- CDTFA Publication 109 – Internet sales and digital goods
When Are NFTs Taxable in California?
CDTFA says:
- Minting or selling NFTs in exchange for crypto or fiat may be a taxable retail sale.
- Royalties from NFT resales are typically not subject to sales tax, but still reportable income.
- If the NFT includes a physical or downloadable good, tax applies.
- Location matters: Sales sourced to California may trigger obligations, especially for resident creators or CA-based platforms.
Example: NFT Creator in San Diego
Example: Mia, a digital artist in San Diego, sells a 1/1 art NFT for 1 ETH and sets a 5% royalty on secondary sales.
- First sale: Treated as a taxable digital product, subject to sales tax in CA.
- Royalties: Reportable as ordinary income, not sales tax.
- Platform: If OpenSea collects the sale, Mia may still be considered the seller of record under CA law.
Step-by-Step: NFT Sales Tax Compliance in 2025
- Determine Product Type
Is your NFT a license, art piece, game skin, or unlockable item? CDTFA treats each differently. - Register for a Seller’s Permit (if applicable)
If selling NFTs as a business, register with CDTFA. - Collect and Remit Sales Tax
Use marketplace data or API tools to track taxable transactions. - Report Royalties as Income
Use Schedule C or Schedule E depending on your role. - Maintain Contracts and Smart Contract Terms
Audit trail matters especially if physical goods are tied to the NFT.
Conclusion
NFT creators and Web3 developers in California must take sales tax seriously in 2025. With CDTFA’s guidance expanding, failure to collect or remit tax may lead to penalties even if transacting on-chain.
Clarify what you’re selling, track your platform role, and stay compliant.
Call to Action
Confused about California NFT tax rules?
Book a compliance session with Anshul Goyal, CPA, EA, FCA
Anshul assists with:
- Sales tax registration and NFT categorization
- Royalty income reporting
- CDTFA and IRS filings
Stay audit-proof while selling art on the blockchain:
https://calendly.com/anshulcpa/
Anshul Goyal, CPA, EA, FCA
Anshul brings 15+ years of U.S. and international tax experience. He specializes in helping online sellers, foreign founders, and U.S. residents with IRS and multi-state compliance. Known for his deep knowledge in Shopify and Amazon seller tax strategy, Anshul has helped hundreds of entrepreneurs minimize taxes and scale legally.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. Please consult a qualified tax professional regarding your individual tax situation.
Top 5 High-Searched FAQs (2025)
1. Are NFT royalties taxable in California?
Yes, as income but not subject to sales tax.
2. Does California charge sales tax on NFTs?
Yes, if the NFT includes digital or physical deliverables.
3. Do I need a seller’s permit to mint NFTs?
If done regularly for income, yes.
4. How does CDTFA track NFT sales?
They use wallet tracing and audit platform payment processors.
5. Can I deduct gas fees on NFT sales?
Yes, if used for business; report on Schedule C.