May 18 New Jersey Convertible Virtual Currency
In today’s financial landscape, uncertainty is at the forefront of most people’s minds. This is ever so true when it comes to guidance related to convertible virtual currency. Generally, technical guidance on the topic has been limited, however, a few states like New Jersey have alleviated some of the confusion by issuing technical guidance explaining the topic.
On March 21, 2022, New Jersey issued TAM – 2015-1(R), which set out to provide technical guidance about the tax treatment of transactions related to convertible virtual currency (think Bitcoin and NFTs).
New Jersey has coupled its guidance with the Internal Revenue Service in asserting that convertible virtual currency must be reported in U.S. dollars and be valued at fair market value at the date of transaction. Additionally, convertible virtual currency is classified as intangible property rather than tangible personal property.
For New Jersey Gross Income Tax and Corporation Business Tax purposes, this view has considerable nexus implications as P.L. 86-272 only protects the sale of tangible personal property (and how those sales are delivered) and does not apply to the sale of virtual currency to customers in New Jersey. Out-of-state businesses that sell virtual currency to New Jersey customers need to be aware of these rules and take appropriate actions to be in good standing with the state, or at the least be in compliance with the state’s intangible taxing regime.
New Jersey TAM – 2015-1(R) provides guidance in connection with how convertible virtual currency is taxed in the context of Sales and Use Taxes. Since New Jersey does not impose Sales or Use Tax on the purchase of intangible assets, the purchase of virtual currency for investment purposes is not considered a taxable transaction and is not subject to Sales Tax. However, receiving virtual currency as a form of payment for tangible personal property or services is considered a taxable transaction and sales tax applies. Therefore, the seller must determine the fair market value in U.S. dollars of the virtual currency when the transaction occurs and charge the purchaser sales tax accordingly.
Additional areas of consideration explained in the technical memorandum include New Jersey conforming to federal tax treatment of the gain or loss of the sale or exchange of virtual currency and income tax withholding requirements when virtual currency is paid as wages. In both cases, the virtual currency must be valued at fair market value and converted into U.S. dollars at the date of the sale/exchange or when received as wages.
The area of transactions involving virtual currency or NFTs is very complex. The SAX State & Local team is dedicated to demystifying and clarifying this area of business practice for our clients. If you find yourself ensnared in this area of tax, please contact the SAX State & Local tax practice or your SAX engagement partner.
Reach out at:
Edvin Givargis, SALT Partner at [email protected]
John Nunes, Tax Manager at [email protected].
