New Jersey: Virtual Currency and Sales Tax
- Apr 10, 2015 | Gail Cole
Update, 8.3.2015: The New Jersey Division of Taxation has updated its Technical Advisory Memorandum on virtual currency to clarify that the purchase or use of convertible virtual currency, which has an equivalent value in real currency, is not subject to sales tax because it is treated as intangible property. However, as explained below, sales tax is due on transactions involving taxable goods or services purchased with convertible virtual currency.
Sales in which virtual currency such as bitcoin are used as payment are considered barter transactions in New Jersey (and several other states). Barter transactions are not sales tax exempt.
According to the New Jersey Division of Taxation, “sales tax is due based on the amount allowed in exchange for the virtual currency” when virtual currency is used as payment. To clarify:
“If the customer that provides convertible virtual currency in the trade receives property that is subject to tax, the customer owes tax based on the market value of the virtual currency at the time of transaction, converted to U.S. dollars.”
Since the market value of virtual currency fluctuates, sellers who accept it as a form of payment must do the following:
- Retain “documentation of the amount for which they regularly sell the same or similar property to customers when the payment is in U.S. dollars.”
- Record “in their books and records the value of the convertible virtual currency accepted at the tie of each transaction, converted to U.S. dollars.”
- Remit “any sales and use tax due in U.S. dollars.”
As of this writing, the State of New Jersey does not accept tax payments in bitcoin.
Additional information on how tax applies to virtual currency in New Jersey is available in the division’s Technical Advisory Memorandum, TAM-2015-1.
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