The place to find business sales tax information

— as well as solutions, services and jobs!

Sales Tax and Bitcoin (or Other Virtual Currency)

author photo of Annette Nellen

New types of transactions often challenge existing rules designed without such transactions in mind. The use of virtual currency, such as bitcoin, may be another example. The IRS has proclaimed that convertible virtual currency should be treated as property for federal tax purposes (rather than as a foreign currency) (see Notice 2014-21).

If states take a similar approach (which seems likely), would obtaining bitcoin from someone for cash be subject to sales or use tax? It seems like a "sale" of property. However, virtual currency is intangible and most states (perhaps all) would not include it in the sales tax base (today).

A few states have issued statements or guidance on virtual currency.  For example, in June 2014, the California Board of Equalization issued a special notice - Accepting Virtual Currency as a Payment Method. The BOE points out that "The measure of tax is the total amount of the sale or lease, whether received in money or other consideration." Records should be kept that show the amount charged. For example, to show the price charged for a meal, a restaurant should keep a copy of the menu. The BOE notes that it does not accept payment in virtual currency. There was no mention of sales tax on virtual currency, but California would not tax it as the state has mostly a tangible personal property base.

In September 2014, the Missouri Department of Revenue issued LR 7411 (9/12/14). Here, Taxpayer (T) provides ATMs that enable customers to obtain bitcoin. Customers insert paper currency and obtain bitcoin on their electronic wallet. T is not a bitcoin exchanger and does not produce bitcoin. The question presented to the DOR was whether T is required to collect sales tax when it transfers bitcoin to customers. The DOR said no because the item transferred it intangible and not subject to sales tax.

And on December 5, 2014, the New York State Dept. of Revenue and Taxation issued TSB-M-14(5), (7)I, 17(s) covering sales tax and income tax. For sales tax, the ruling explains that use of virtual currency to pay for purchases results in a barter transactions (following the property approach of the IRS notice).

Per the NY ruling: "A barter transaction is actually comprised of two separate sale transactions. Each party to a barter transaction gives something of value to the other party in order to receive something of value in return. In a barter transaction, sales or use tax (sales tax) is due from each party based on the value of the property or services given in trade if what is received in exchange is subject to sales tax. Services given in trade are taxed based upon a party’s normal charge for the service it provides."

An example is provided of a home décor vendor accepting virtual currency from customers. As a barter transaction, this means that the customer receiving the décor items owes sales tax (to be collected by the vendor). The transaction amount is based on the value of the virtual currency at the time.The vendor received virtual currency, but no sales tax is owed because it is intangible and not subject to sales tax in New York. The vendor is to record the sale based on its value in US dollars and remit the sales tax in US dollars. No guidance is given as to what exchange table to use to determine the value of the virtual currency in US dollars at the time of the transaction.

If a state imposed sales tax on virtual currency or it fell within an existing definition of taxable digital goods or a taxable intangible, there could be double taxation because the merchant is really accepting the virtual currency as a cash equivalent. Returning to the home décor example above, each party would owe sales tax on the exchange if the sales tax base include virtual currency. And, if the vendor converts the virtual currency to cash (that is, sold it to someone for cash), sales tax would be charged on that transaction too. That seems a bit odd, but appropriate unless an exception is provided for the cash to virtual currency conversion.  Australia has proposed that double taxation results with its goods and services tax (VAT).

As states continue to broaden and modernize their sales tax base for our modern world (the one where some tangible goods are replaced with digital ones), consideration will need to be given as to whether the exchange of virtual currency for cash should be exempted, at least for merchants.

What do you think?

For background on virtual currency and its taxation and regulation, see

Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.


1 Responses to Sales Tax and Bitcoin (or Other Virtual Currency)

  • Posted by State on December 27, 2014 12:43am:

    […] sales tax. I’ve obtained a brief publish in on this – click on here (12/19/14 […]

Submit a comment or question - only your first name will appear


Access to any portion of is contingent upon your acceptance of our Terms of Use. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.