Virtual currency developments continue to emerge, including state tax guidance, a court decision on deductibility of losses, and the Uniform Fiduciary Access to Digital Assets Act (the “Act”).
State Tax Guidance
The New Jersey Division of Taxation released Technical Advice Memorandum 2015-1 (the “NJ TAM”). The NJ TAM explains New Jersey’s treatment of virtual currency; that is, New Jersey treats virtual currency as property in conformance with Internal Revenue Service (IRS) Notice 2014-21 (detailed in a previous post). New Jersey takes its guidance two steps further than the federal guidance: (1) sales and use tax, and (2) corporation business tax and gross income tax.
First, a customer who uses convertible virtual currency to pay for property will be viewed as engaging in a barter transaction. In a barter transaction, if what is received in exchange is subject to sales tax, then sales or use tax is due from each party based on the value of the property or services given in a trade. The state statute provides that a sale includes a barter transaction. New Jersey imposes sales tax on the receipts from retail sales of tangible personal property, specified digital products, and enumerated services. The NJ TAM explains how, in a barter transaction, one party must forfeit something of value in order to receive something of value. If a customer purchases a good with convertible virtual currency, sales tax is due on the amount allowed in exchange for the virtual currency, or (put another way) the purchase price of the goods received. The NJ TAM imposes a record-keeping obligation on sellers who accept convertible virtual currency as a form of payment for goods. Among other things, sellers must record the regular selling price of the same or similar product when sold in United States dollars, and the amount of sales tax collected.