New York and Virtual Currency: A Semi-Taxable “Barter” Transaction

January 7, 2015

Sovos

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Sovos

This blog was last updated on June 27, 2021

When virtual currency is used to purchase other items or services, a semi-taxable “barter” transaction has arisen in New York.

Bitcoin and other virtual currencies have been a hot topic as of late, and it seems that New York has decided to address this issue with respect to sales tax. Previously, the IRS had held that bitcoins were a type of property. New York has gone ahead and held that digital currencies are “intangible personal property” and as a result not subject to tax when purchased or redeemed for actual currency.

However, bitcoin users should be aware that when virtual currency is used to purchase other items or services, a semi-taxable “barter” transaction has arisen in New York. The New York Department of Taxation and Finance has indicated that receipt of virtual currency does not result in sales or use tax liability. However, a person who receives taxable services or tangible personal property in return for virtual currency will still be required to pay sales tax on the items received. The examples New York provides in its technical memorandum, TSB-M-14(5)C,(7)I, (17)S, indicate that when virtual currency is provided as payment, the retailer or service must separately state the sales tax due, and the consumer or user of the tangible personal property or services will have to remit sales tax. Furthermore businesses which accept virtual currency will have to report and register for sales taxes as well. In conclusion, when bitcoins are used to actually carry out a sale, only actual tangible personal property’s value will be subject to sales and use tax.

This clarification on bitcoins solidifies the position the IRS took on virtual currency earlier in the year. New York is now jumping into the arena and virtual currency is destined to become more regulated going forward. Taxware is monitoring this situation, as virtual currency becomes a more accepted form of currency going forward.

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Sovos

Sovos is a global provider of tax, compliance and trust solutions and services that enable businesses to navigate an increasingly regulated world with true confidence. Purpose-built for always-on compliance capabilities, our scalable IT-driven solutions meet the demands of an evolving and complex global regulatory landscape. Sovos’ cloud-based software platform provides an unparalleled level of integration with business applications and government compliance processes. More than 100,000 customers in 100+ countries – including half the Fortune 500 – trust Sovos for their compliance needs. Sovos annually processes more than three billion transactions across 19,000 global tax jurisdictions. Bolstered by a robust partner program more than 400 strong, Sovos brings to bear an unrivaled global network for companies across industries and geographies. Founded in 1979, Sovos has operations across the Americas and Europe, and is owned by Hg and TA Associates.

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