Most of us are familiar with the scrutiny placed on cryptocurrencies by the IRS. The next federal 1040 has an even longer set of probing questions about crypto transactions.

How does sales tax fit into this? Sales tax when dollars and other “fiat money” are involved is clear: there is no sales tax due when acquiring the currency, and the currency can be used as legal tender to satisfy the purchase price of goods and services including any applicable sales tax due on the purchase price.

Crypto greatly complicates the question. So far, few states have regulations regarding virtual currency, but that’s changing.

Take it state by state

According to a recent guide from Bloomberg, nine states treat crypto the same as they do cash for transactions for sale tax purposes: California, Kansas, Kentucky, Michigan, Minnesota, New Jersey, New York, Washington and Wisconsin.

Adds New York, “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.

“However, 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.”

Most states have not formally expressed an opinion about how sales tax applies when crypto is involved. This leaves the door open as to whether the acquisition of crypto could be subject to sales tax and whether individual states will accept crypto as legal currency.

Though crypto regs exist so far in only a few states, as guidance develops the best approach is to find out from individual states how the use of cryptocurrencies affects your sales transactions. (You can also even pay your taxes in crypto in Colorado.) As with everything concerning sales tax, expect all these conditions to change fast.

Outsourcing sales and use tax management to an expert can save your business time, money and stress. Contact TaxConnex to learn how we can help.

Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2011 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.