State Taxation of Virtual Currency: Sales Tax and Other Implications of Cryptocurrency Transactions

Description

As more businesses accept virtual currency, consumers can exchange virtual currency (e.g., Bitcoin) for many goods and services. In addition to the federal tax treatment of Bitcoin and other virtual currency, there are state tax implications of transactions involving cryptocurrency that businesses and investors must grasp and consider.

Buying, selling and trading Bitcoin incurs tax consequences. The IRS treats virtual currency as property for tax purposes; disposing of property may result in a capital gain or loss. A taxpayer who receives virtual currency payments must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, and the date the taxpayer received it.

Based on the IRS treatment of virtual currency and state conformity efforts, the sale of Bitcoin or other virtual currency may also be subject to state sales tax. This is an evolving area of the law, and states may impose a sales tax based on the electronic transmission of virtual currency—or label it as foreign currency subject to sales tax. The sales tax question brings new challenges in complying with state sales tax collection and reporting obligations.

Listen as our panel guides tax executives and advisors on the state tax implications of transactions involving virtual currency and the key considerations in the application of sales tax on the sale of or accepting virtual currency as payment for goods and services.