In July, the State of Washington added NFTs to the list of properties subject to sales and use tax regulations. The move made Washington the first state in the nation to tax NFTs. Experts say that soon many states will follow the example of Washington.
“The states have seen a sharp increase in NFT prices over the past few years,” says New York lawyer Amelia K. Brankov. All of this money is of interest to tax inspectors, and some states are focusing on taxing NFT sales. In Washington, the sales tax rate is 6.5%, but perhaps that is the only thing that is clear in this process.
The taxation of NFTs is complicated by uncertainty about where they are coming from, which can be a tricky issue when selling NFTs. There are many marketplaces and some states currently require them to charge sales tax, but compliance has been inconsistent. If the marketplace does not charge tax, the buyer may be responsible for it.
Additionally, some states recognize digital products such as NFTs as taxable while others do not, making it difficult to determine whether taxes are due or not. As of press time, 32 states have rules allowing digital goods to be taxed, including Pennsylvania, Texas, and Washington, and 12 states, including California, Florida, and New York, exempt digital goods.
The Crypto Lawyers states that many of these 32 states “already have legislation in place to allow taxation of NFT sales, even though the wording of the law does not explicitly allude to NFTs.”
There is less confusion at the federal level, as the Internal Revenue Service announced back in 2014 that it would treat cryptocurrencies as property, so that every time the owner of a cryptocurrency uses it, that person will pay tax on any profits.
