States Turning Eyes To Taxation Of Cryptocurrency And Non-Fungible Tokens (NFTs) – Sales Taxes: VAT, GST – United States – Mondaq
22 July 2022
Cadwalader, Wickersham & Taft LLP
…….
22 July 2022
Cadwalader, Wickersham & Taft LLP
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As the IRS ponders its approach to taxing cryptocurrency and
NFTs, states are increasingly imposing taxes on some digital asset
transactions, including the use of cryptocurrencies, as discussed
below:
- New York announces apportionment rules to treat sales
of cryptocurrency as digital products and tax
accordingly. The New York State Department of
Taxation and Finance published draft guidance, included
here, expanding the apportionment rules for digital products to
include cryptocurrency or similar assets digitally delivered, and
in doing so, clarified that the income sourcing rules from the sale
of cryptocurrency should follow those for digital assets for New
York state tax purposes. - New Jersey will tax virtual currency transactions for
goods and services under sales tax and is studying ways to identify
additional transactions subject to tax but will not impose sales
tax on virtual currencies purchased for investment.
New Jersey’s Division of Taxation indicated that it is
creating a working group to better identify cryptocurrency
transactions subject to sales tax and is considering information
exchange policies with the IRS and other states. The Division of
Taxation previously issued a Technical Advice Memorandum (TAM),
included
here, in March stating that the purchase of virtual currencies
for investment purposes is not subject to sales tax; by contrast,
the purchase of taxable goods or services with virtual currencies
is subject to sales tax as well as record keeping requirements of
the Seller. The TAM further indicated that for Corporation Business
Tax and Gross Income Tax purposes, New Jersey would follow the
federal tax treatment of virtual currency. - Washington will tax sellers, purchasers, and
marketplaces of NFTs under its sales tax and business &
occupation tax regimes per newly published guidance.
Washington’s Department of Revenue issued an Interim Guidance
Statement (IGS) clarifying the tax treatment of transactions
involving NFTs for sales tax as well as business & occupation
tax purposes. The IGS impacts sellers, purchasers and NFT
marketplaces where sales are sourced to Washington. Included in the
IGS are measures to calculate the sales price of NFTs, including
where cryptocurrency is received as consideration, obligations of
the seller and NFT marketplaces to maintain records, implications
on mixed transactions where NFTs are bundled with other goods and
services, and requirements for NFT marketplaces to collect and
remit sales tax on behalf of its sellers. The IGS can be
found
here. - Arizona carves out airdrops from gross income and
allows deduction for certain transaction fees paid on
cryptocurrency and NFTs. Arizona’s recently
enacted legislation, included here,
provides that virtual currency and NFTs received pursuant to an
airdrop are not taxable at the time of the airdrop but are taxable
on their subsequent sale. Airdrops are a means of distributing
cryptocurrency to the distributed ledgers of multiple taxpayers.
The legislation further allows taxpayers to subtract from adjusted
gross income on virtual currencies or NFTs so-called “gas
fees,” which are facilitation fees paid to virtual networks
for purchase, sale or exchange of virtual currencies or NFTs. The
subtraction applies to years where the taxpayer recognized gain or
loss on virtual currencies or NFTs, and has not otherwise included
the gas fees in its basis. Arizona’s legislation contrasts
with U.S. federal tax law and Rev. Rul. 2019-24, where the IRS
treated cryptocurrency received pursuant to an airdrop following a
hard-fork as taxable at the time of receipt. See our
earlier BrassTax article
here for a discussion of prior IRS guidance on
airdrops.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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