Helpful Crypto Taxation Report From Kansas

Written by Annette Nellen | Posted in Kansas Crypto Legislation

This month, the Kansas Legislative Division of Post Audit, a “non-partisan audit arm of the Kansas Legislature, released a very good background report on cryptocurrency and tax issues – Reviewing Issues Related to State Cryptocurrency Tax Policies. The Division’s website also has a link to a 16-mimnute audio file that is about the best I have heard on the basics of cryptocurrency tech and tax. I recommend it if you feel you are missing the basics on these topics.

Appendix B is a helpful glossary of terms such as airdrop, blockchain, hard fork and staking.

A few interesting items from the report:

16% of people in the US have invested in or used cryptocurrency (per Pew Research Center).
When there is not third party reporting (such as a 1099), only 45% of taxpayers accurately report their income. I have heard this before. Per the IRS (page 14), for income subject to substantial information reporting and withholding, there is only about 1% underreporting. In contrast, for income subject to little or no information reporting and no withholding, compliance is only about 55% (45% non-compliance).So if you wonder why IRC §6045 on broker reporting was expanded by the Infrastructure Investment and Jobs Act (PL 117-58, 11/15/21) to include virtual currency sales by exchanges (and perhaps by others), that the underreporting of transactions without third party reporting, is the key reason.
“State governments have yet to agree on a set of best practices regarding the taxation of cryptocurrencies.” There are no uniform laws. There have been a good number of legislative proposals (tax and non-tax) including per the NCSL, 43 bills in 22 states since 2015.

Some of the open issues in most states regarding cryptocurrency include:

For states that subject digital goods and electronic transmissions to sales tax, are cryptocurrency and non-fungible token (NFT) transactions subject to sales tax. Recently, Pennsylvania confirmed that NFTs are subject to sales tax.
How does a business source income and gains from virtual currency?
How do unclaimed property laws apply to cryptocurrency and other digital assets?

At the virtual currency and blockchain website I maintain, search for “state information” and you’ll see a long list of various rulings and legislation in states regarding cryptocurrency.

What do you think? Any particular guidance you are waiting for on cryptocurrency from a state?

Professor Annette Nellen, San Jose State University, CA

Annette Nellen

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.