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As the 2021/2022 fiscal year ended on June 30, many states implemented sales tax legislation reforms. In this blog article, we share a few standout updates you should know about.

Washington State Department of Revenue & NFT Sales Tax

NFTs, or non-fungible tokens, have been around since 2014, but started gaining momentum in 2021 and have only risen in popularity since. As you can imagine, this has created some sales tax confusion.

Washington state is one of the few states to tackle the taxiblity of NFTs, and on July 1, 2022, the Washington State Department of Revenue published an interim statement on how sales tax applies to NFTs. The statement is “intended to provide general information related to the taxability of certain transactions involving NFTs and does not intend to address any exemptions, exclusions, deductions, credits or other incentives that may apply.” The interim statement functionally defines NFTs as a digital code.

Written by Monika Miles | Posted in Non-Fungible Tokens • Sales Tax

An NFT from digital artist Beeple selling for $69 million? An NFT of Twitter CEO Jack Dorsey’s first ever tweet fetching a price of almost $3 million? These sales represent only a fraction of the NFT market, which has seen sales volume totaling $13.2 billion so far in 2021.

The exploding popularity of NFTs will continue to draw more scrutiny from the IRS, as the agency debates how to best capture and subject NFT sales and exchanges to taxes. But the IRS has offered limited guidance on NFTs so far, leaving creators/dealers and investors of NFTs to navigate an uncertain tax regulatory landscape. Drawing from existing IRS guidance on cryptocurrencies and traditional tax principles, this blog post will attempt to fill in the blanks on the taxation of NFTs, both from the perspectives of creators/dealers and investors.

What are NFTs?

Before diving into the taxation of NFTs, a discussion on what NFTs are and why they have become so valuable is in order. In general, NFTs, or non-fungible tokens, are digital representations of texts, images, videos, or other content that are stored on a blockchain network like other cryptocurrencies. But unlike Bitcoin or Ethereum, NFTs are nonfungible digital assets, meaning they are unique and can’t be replaced with anything else. In this regard, NFTs are similar to unique trading cards or diamonds – if you exchanged them for another card or diamond, you would receive something completely different in return.

Written by Jason Freeman | Posted in Non-Fungible Tokens • Taxation of NFTs