Pennsylvania & Washington Become First States In America To Tax NFTs

Pennsylvania and Washington have become the first states in America to treat non-fungible tokens (NFTs) as properties that can be taxed. The laws were passed on the down low in June and July, respectively, and it isn’t until now that people are catching on.

Pennsylvania’s Department of Revenue had added NFTs to its taxable matrix and issued no further guidelines, while Washington issued a statement with important terms constituting how the digital asset will be levied, what defines a token, and how buyers and sellers can go about filing their tax.

Under Washington’s statement, the state is requiring anyone selling digital artwork to state the time and place of the transaction and possibly even the address of the buyer. This could imply that anonymity in the market could be a thing of the past if the regulation takes off elsewhere.

Taxing the digital market is a lot more complicated than one would think. The NFT economy is an online system that trades cryptocurrency for art, and it is often hard to track down who the buyers and sellers are or where they live. Moreover, not all states recognize tokens as taxable, and it would be hard to charge for transactions that take place in and out of these two states.

Cryptocurrency has been treated as a chargeable property since 2014 by the Internal Revenue Service (IRS). Because of this, the new laws are current interpretations of existing laws. Pennsylvania’s Department of Revenue has also stated that the state could have started tarrifing NFTs back as far as 2016.

The decision to enact this new ruling comes after a court case in 2018, South Dakota vs. Wayfair, where the conclusion of the lawsuit demanded that retailers did not have to have a physical presence for transactions to be taxed. NFTs fall under this type of purchase and, as such—as rationalized by lawmakers—should be charged as well.

[via Hyperallergic and The Art Newspaper, Photo 215277552 © Andrii Yalanskyi | Dreamstime.com]