SNEAK PEEK
- Companies are still evaluating the possibilities presented by blockchain systems, cryptos, and non-fungible tokens.
- When it comes to cryptocurrency taxes, states often follow the federal approach.
- Many prominent NFT collections are accessible via NFT markets, which enable users to mint, manufacture, sell, or trade NFTs.
Despite the 2022 cryptocurrency market slowdown, companies are still examining the opportunities afforded by blockchain technology, cryptocurrencies, and other digital products such as non-fungible tokens. They are interested in learning about the state and federal tax consequences of this new technology. This post answers the top three queries from our clients. The purchase of bitcoin is exempt from sales tax. Provinces, like the federal government, consider cryptocurrency to be an intellectual asset; therefore, sales of intangible assets are normally exempt from sales tax.
States typically follow the federal approach to cryptocurrency taxation. Cryptographic transfers are considered asset sales, with gain or loss calculated by the difference between their fair market value at the moment of conversion and the taxpayer’s basis in them. The purpose or use of the crypto asset in the taxpayer’s hands determines whether the recorded gain or loss is capital or regular for federal and state tax purposes.
The purchaser must first establish the nature of the fundamental goods associated with the NFT being sold. An NFT can be linked to a variety of underlying items and services, including physical private possessions, virtual artwork, and leisure accessibility.
Crypto is often used instead of fiat currencies, such as the US dollar, for sales of NFTs. If a seller accepts crypto in a transaction, and the transaction is subject to sales tax, then the seller must determine how to calculate that tax. States likely will require the seller to calculate the sales tax base in one of two ways. When a taxpayer swaps assets for other goods or services, it is often classified as a barter transaction for tax purposes. The foundation of the cryptocurrency used by the customer to make the transaction may be difficult to determine, particularly for taxpayers who have made several bitcoin purchases or earned bitcoin through mining operations over time.
Many popular NFT collections are accessed through NFT marketplaces, which allow users to mint, create, and sell or trade NFTs. Marketplaces often impose trading fees, commissions, which are generally a percentage of the revenue generated from an NFT sale. The purchaser’s location generally determines the sourcing of a sale for sales tax purposes. This information can also be used to determine whether the marketplace has a filing obligation in a certain state.
Blockchain networks, cryptocurrency, and non-traditional financial instruments (NFTs) create fresh and difficult tax concerns for enterprises that adopt this new technology. State budget officials have been sluggish to offer specific taxpayer instructions in the past, but that may change in the next few months and years.
