Washington and Pennsylvania have become the first states to issue sales tax guidance around non-fungible tokens (NFTs).
NFTs are digital code on a blockchain that can represent real world items such as art. It is important to note that while digital art is likely the most common type of digital code, there are many different types of NFTs, each having its own unique use.
On July 1, 2022, Washington released detailed guidance around the state’s treatment of NFTs. The guidance explains the taxability of NFTs and common issues in applying sales tax. The most concerning issue is determining in which state the sale should be sourced for sales tax purposes.
Pennsylvania earlier released REV-717(SU) on May 22, 2022, providing guidance for all retailers within the state. Under the section for Computer Hardware, Digital Products and Streaming Services, the state newly identified NFTs as being taxable. Unlike in Washington, there was no specific guidance or explanation accompanying the decision as to how the state expects a taxpayer to apply tax to sales of NFTs.
Other than in WA and PA, sellers of NFTs currently are forced to rely on each state’s taxability conclusions with regards to digital products, or on computer software, to decide if they believe NFTs are taxable in a given state. The risk to a company selling NFTs is in states where sellers must rely on their own comparisons; taxpayers run the risk of being held liable for non-collection of state sales tax.
Consult your CBIZ State and Local Tax professional for assistance with taxability issues pertaining to the sale of NFTs.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.