Tuesday, September 26, 2023
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Washington becomes first US state to tax NFTs

Washington state added NFTs (Non-Fungible Tokens) will be the first state in the United States to be added to the list of properties subject to sales and use tax provisions in July, but unlikely to be the last.

Sales tax applies to all purchases of goods or services by consumers and businesses, while use tax applies to state tax returns where no sales tax has been paid, such as goods and services from out-of-state vendors. will be The amount corresponds to the sales tax of the state in which the item was sold. No one can guess how many NFTs will turn out in the U.S. and around the world, but blockchain tracking firm NonFungible.com estimates that his NFT transactions worldwide will make him $17 billion in 2021. .

“NFT prices have skyrocketed in the state over the past few years,” says New York attorney Amelia K. Brankoff. All that money has attracted the attention of revenue officials, and “in some states she’s looking at the taxability of NFT sales.” Washington’s sales tax rate is 6.5% for her, but that might be the only clear thing about this process.

Taxing NFTs is complicated by the uncertainty of where the NFTs are “sourced”. This can be a difficult issue when selling NFTs. Selling NFTs is typically done through the transfer of assets to a digital wallet rather than a physical address. Many digital marketplaces exist, and some states now require the collection of sales tax, but compliance is inconsistent. If the marketplace fails to collect the tax, the buyer may be held responsible.

In addition, some states allow digital products such as NFTs to be taxed, while others do not, confusing the taxable decision. At press time, 32 states, including Pennsylvania, Texas, and Washington, have regulations permitting taxes on digital goods, and 12 states, including California, Florida, and New York, have expressly exempted these items. increase. Agustin M. Barbara, managing partner of Miami-based The Crypto Lawyers, said many of these 32 states “already have statutory frameworks in place that allow them to tax the sale of NFTs. Although the statutory language is not explicit, it does refer to NFTs.”

Federal rules become clearer

There has been less confusion at the federal level since the Internal Revenue Service (IRS) announced in 2014 that it would treat cryptocurrencies as assets. This means that every time a cryptocurrency owner uses it, that person will pay taxes on their profits. Furthermore, in a 2018 Supreme Court decision, South Dakota vs Wayfair—This means businesses without a physical presence in the state with more than 200 transactions or more than $100,000 in state sales must collect and pay sales tax on their in-state transactions. , which may apply to NFT sales platforms.

In the coming months, the IRS will issue guidelines on federal taxation of digital assets. That’s a revenue boost clause in the Biden administration’s Infrastructure Act enacted last fall. This provision requires brokers of digital products, such as selling platforms, to obtain the physical addresses and social security numbers of buyers and sellers, and these brokers are required when users of the site file their personal taxes. You must file a Declaration of Information (Form 1099). Return value.

Whether or not Washington and other states impose sales taxes on NFTs depends on the existence of the 1099 forms, said Rosemary Ringwald, national head of art planning for Bank of America’s private banking division. “Washington is blazing a new trail in this area, but it is inevitable that other states will follow suit.”

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