The Potential Impacts of Remote Sales and Use Tax on Crypto Assets

Darren.Woon

As states update their sales and use tax laws to rein in an additional source of state revenue from a new world of remote transactions, certain common cryptocurrencies and crypto asset-related businesses may be subject to the new laws, according to JD Supra.

Platforms that allow parties to negotiate transactions and pay each other using issued tokens as a method of payment may be obligated to collect and remit sales tax for their customers’ transactions.

The unclear terms defined by different states’ versions of the remote sales and use tax law make them susceptible to multiple interpretations. For example, items sold on platforms such as computing power and digital storage are hybrids of goods and services. They blur the lines on whether they qualify as “retail sales” or sales of “tangible personal property” or “taxable services”.

While cryptocurrency exchanges can be considered marketplace facilitators (as they engage in payment processing, payment collection, payment transmissions, order fulfillment, storage, listing services, order taking, and customer service to some extent), traders that use crypto exchanges to sell crypto assets are likely to be considered marketplace sellers.

Yet, crypto assets don’t have the proper legal classification necessary to apply the new laws equally. Some crypto assets are classified as securities, which do not qualify for the tax, while others are sold as personal property or commodities, which qualify as taxable retail transactions.

Additionally, anonymous marketplaces could be seen by regulators as an attempt to avoid tax compliance and could subject both the marketplace facilitator and sellers to civil or criminal penalties.

Companies that engage in crypto activity must therefore apply the sales and use tax laws differently, as they apply to individual states.

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