New York State: No Sales Tax for Bitcoin Buyers

By Jacob Cohen Donnelly Dec 12, 2014 6:32 AM EDT

bitcoin taxation

NEW YORK (InsideBitcoins) — New York State may be trying to overregulate bitcoin on one hand, but their tax agency is looking to give bitcoin buyers a bit of a pass. In a memorandum put out by the New York State Department of Taxation and Finance, the agency said that “virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.”

In other words, bitcoin sales will be taxed as a barter transaction. Because each party is giving something of value to the other, each is responsible for the payment of sales tax based on the value of that property. But, because the agency views virtual currencies as intangible property, that side of the barter doesn’t get taxed.

The report stated: “For sales tax purposes, convertible virtual currency is intangible property. Since the purchase or use of intangible property is not subject to sales tax, any convertible virtual currency received by a party to a barter transaction is not subject to sales tax.”

Of course, there are still taxes

While the intangible property clause does give virtual currency some leeway, there are still many instances where a user would have to pay tax. The report says:

…If the party that gives convertible virtual currency in trade receives in exchange goods or services that are subject to sales tax, that party owes sales tax based on the market value of the convertible virtual currency at the time of the transaction, converted to U.S. dollars. If the party that trades property or services in exchange for receiving convertible virtual currency gives the other party a sales slip, invoice, or receipt, the first party must separately state the sales tax due in U.S. dollars on the sales slip, invoice, or receipt.

Possible use cases

One use case that the state provided was regarding an online retailer registered for New York state tax purposes. This retailer accepts virtual currency as payment for home décor. Since home décor is taxable, the customer owes sales tax. However, because the vendor has received virtual currency for payment, they do not have to pay any sales tax on the currency.

An example of where both parties would be taxed is when virtual currency doesn’t play a part in the transaction. A home décor vendor barters with a mechanic. In exchange for repairs to a muffler, the home décor vendor gives the mechanic a painting. Since both are taxable in New York State, both would have to pay sales tax on the value of those items.

In another way: the receiver of a “thing” that can be taxed will be taxed; the receiver of the cryptocurrency will not.

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