New York State on Bitcoins: Transactions Are Barters for Sales Tax Purposes; Follow Federal Guidance for State Income Taxes
The New York State Department of Taxation and Finance has issued guidance on the sales tax, corporation franchise tax, and personal income tax implications of transactions involving convertible virtual currency, such as bitcoins. See N.Y. TSB-M-14(5)C, (7)I, (17)S, Dec. 5, 2014. The Department’s guidance can be found here. As summarized below, the Department explains in its guidance that convertible virtual currency will be treated as intangible personal property, and the resulting New York tax consequences will flow from that characterization.
For New York sales tax purposes, the Department will treat a transaction involving convertible virtual currency transactions as a barter transaction. Because convertible virtual currency is intangible property, according to the Department, the purchase or use of the currency is generally not subject to sales tax. However, if a person transfers convertible virtual currency for taxable goods or services, New York sales or use tax will apply. The tax base (i.e., receipts or consideration) will be determined based on the market value, in U.S. dollars, of the convertible virtual currency at the time of the transaction. The Department’s guidance includes examples and other information, such as registration obligations for persons engaging in convertible virtual currency transactions.
For corporation franchise tax and personal income tax purposes, the Department will follow the IRS Notice 2014-21, found here, which treats convertible virtual currency as property for federal tax purposes.
Other states have addressed bitcoins, as summarized here in a recent post by Sutherland’s SALT Team on www.stateandlocaltax.com.
Our analysis on the federal implications of using convertible digital currency, including Notice 2014-21, can be found here.