Non Fungible Tokens(NFTs) And Sales Tax: Why The Details Are Important To Pay Attention To

In this article, we share why understanding specific details related to NFTs is so important for ensuring sales tax compliance.

As NFTs, or non-fungible tokens, have gained popularity worldwide, we are beginning to see sales tax questions arise about these products. As with other digital products, the details are vital to understanding your sales tax obligations.

When Are NFTs Subject To State Sales Tax?

Very few states have issued specific guidance on whether the sale of an NFT is subject to sales tax. So how do NFT sellers know if they should collect and remit sales tax in each state they have NFT sales in? First, we can look at a state’s legislation regarding digital products. Traditionally, only tangible personal property was eligible for sales tax, but when digital products gained traction, some states began to implement taxes on them. The devil is in the details, however, because the definition of a ‘digital product’ varies by state. Some states say that if a digital product is taxable in its tangible form, then it is taxable in its intangible form. Some states actually treat intangible goods as tangible personal property (TPP) because they can be seen and experienced, and some don’t tax digital products at all because they are intangible.

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Monika Miles - As NFTs Gain Popularity, What Are The Sales Tax Ramifications?

Non-Fungible Tokens, or NFTs, have been around since 2014, but only obtained mainstream use in 2021. According to the Economic Times, NFTs have only gained momentum since. This is due to a variety of reasons including the connection with the metaverse and celebrities jumping on the NFT bandwagon. As a result, NFT sales have soared, with some bringing in millions of dollars. With the popularity of NFTs rising, what are the sales tax ramifications? In this blog article, we explore this new and multifaceted area of taxes.

What Is An NFT? 

Before we explore NFT sales tax implications, let’s clarify what an NFT is. An NFT is a digital asset that represents real-world objects like music, art and videos. Just about anything can be an NFT, and this link shares a list of some of the most popular types  such as collectables, trading cards, art, memes and more. NFTs are bought and sold online, usually with cryptocurrency, a decentralized digital money based on blockchain technology like Bitcoin. As we mentioned above, NFTs have gained traction in recent years, especially as a way to buy and sell digital artwork. According to Forbes, about $174 million has been spent on NFTs since November 2017. NFTs stand out among most digital creations, because they are generally either very limited, or one of a kind, and have unique identifying codes.

NFTs And Sales Tax

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