New York Announces Virtual Currency Policy
- Dec 11, 2014 | Gail Cole
When virtual currency such as bitcoin is used to pay for good or services in State Department of Taxation and Finance treats the transaction as a barter transaction. Each party gives something of value to the other party in a barter transaction, and each party owes the state tax on the value of the property (or taxable services) given in trade, “if what is received in exchange is subject to sales tax.”
The department clarifies its policy in a technical memorandum: “If the party that trades property or services in exchange for receiving convertible virtual currency gives the other party a sales slip, invoice, or receipt, the first party must separately state the sales tax due in U.S. dollars on the sales slip, invoice, or receipt.” When virtual currency is used as a form of payment, the person who uses it to pay owes sales tax “based on the market value of the convertible virtual currency at the time of the transaction, converted to U.S. dollars.”
A few extra steps are required of sellers accepting convertible virtual currency in exchange for taxable goods and services in New York. In addition to registering for sales tax purposes, they must:
- Record the value of the convertible virtual currency accepted at the time of each transaction, converted to U.S. dollars.
- Record the amount of sales tax collected at the time of each transaction, converted to U.S. dollars.
- Report such sales and remit any sales tax due in U.S. dollars when filing periodic sales tax returns.
Virtual money is intangible property and intangible property is not subject to New York sales tax. As a result, “any convertible virtual currency received by a party to a barter transaction is not subject to sales tax.”
Several examples are provided to illustrate the tax policy, including but not limited to the following:
- A New York State vendor accepts convertible virtual currency as payment for the sale of custom computer software delivered to a New York location. Both custom software and virtual money are considered intangible property and are not subject to New York sales tax. Therefore, “this barter transaction is an exchange of a non-taxable product for non-taxable convertible virtual currency. No sales tax is due on this transaction.”
- A New York State resident sends her watch to be repaired at a New York repair shop that accepts convertible virtual currency for its services. Watch repair services are subject to New York sales tax. The repair shop must collect the sales tax from the customer, based on the “fair market value of the convertible virtual currency at the time of sale.” The tax and the fair market value of the convertible virtual currency must be separately stated on any receipt, invoice, etc., provided to the customer. In addition, the repair shop must keep detailed records of the amount of the sale and the sales tax collected in U.S. dollars. Sales tax must be reported, filed and remitted in U.S. dollars.
Additional information and examples are provided on the technical bulletin, as is corporation and personal income tax policy for virtual currency.
You can't pay sales tax with virtual currency. You can implement automated sales tax software as a service to facilitate sales tax compliance. Learn more.