The New York State Department of Taxation and Finance has said that bitcoin purchases will not be subject to sales taxes.
According to a tax guidance memorandum from the agency’s Taxpayer Guidance Division dated 5th December (hat tip Marco Santori), digital currencies are a type of “intangible property” and, as such, are not subject to a sales tax when purchased.
The move comes months after the US Internal Revenue Service (IRS) released its initial guidance on taxing bitcoin as a type of property, and provides an answer to a long-brewing question about how state sales taxes in the US may be applied to bitcoin transactions.
Only in certain cases
The document states that a sales exchange involving a digital currency would be considered a type of barter transaction. Under this definition, the agency writes, only certain goods and services exchanged for a digital currency would be subject to a sales tax or related reporting requirements.
The memorandum includes several examples outlining how one party may, or may not, be required to pay and report sales taxes when a digital currency is involved, stating:
“...if the party that gives convertible virtual currency in trade receives in exchange goods or services that are subject to sales tax, that party owes sales tax based on the market value of the convertible virtual currency at the time of the transaction, converted to US dollars. If the party that trades property or services in exchange for receiving convertible virtual currency gives the other party a sales slip, invoice, or receipt, the first party must separately state the sales tax due in US dollars on the sales slip, invoice, or receipt.”
The Taxpayer Guidance Division also clarifies that its treatment of corporate and personal income taxes related to digital currency “conforms to the federal treatment of convertible virtual currency”, referring to past guidance published by the IRS.
Tax a 'systemic risk' to digital currency
Santori, global policy counsel at Blockchain and attorney at law firm Pillsbury Winthrop Shaw Pittman, told CoinDesk one of the greatest systemic risks to digital currency adoption has always been that its purchase be subject to sales taxation by governments.
"This guidance is the first official statement we have on the matter, and it is excellent news. Because the guidance could serve as a model for other jurisdictions around the world, it is difficult to overstate its importance."
The issue has reared its head in other international jurisdictions as well. While the UK has chosen not to levy its Value Added Tax (VAT) on digital currency exchanges, others, such as Singapore, would apply the Goods and Services Tax (GST) in some circumstances.
This has led to fears of double-taxation as users are charged tax once to acquire bitcoins, and then again when using it for purchases. The European Union is still considering the question.
A more concerning case is Australia, whose tax authority has implied a 10% GST would apply to all digital currency acquisitions. Groups within the country are currently lobbying the federal government to intervene and change the law in an effort to nurture startup activity.
A full copy of the New York State tax guidance memorandum can be found below:
Tax Department Policy on Transactions Using Convertible Virtual Currency_7i_17s
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