How Should Taxpayers Treat Virtual Currency Transactions?
New Jersey is the first state to address the state tax treatment of virtual currencies. New Jersey’s Division of Taxation has issued guidance addressing how a taxpayer should treat virtual currency transactions under its business tax, sales and use tax, and withholding tax in a technical advice memorandum (TAM) dated March 21, 2022.
In the TAM, the New Jersey Division of Taxation (the “Department”) stated the following:
CORPORATION BUSINESS TAX AND GROSS INCOME TAX
New Jersey will conform to the federal tax treatment of virtual currencies as described by the Internal Revenue Service (IRS) in Notice 2014-21, Rev. Rul. 2019-24, and IRS Chief Counsel Memorandum 202114020. The IRS has stated that transactions using virtual currencies must be reported in U.S. dollars for federal tax purposes, therefore, taxpayers must determine the fair market value of convertible virtual currency in U.S. dollars as of the date of payment or receipt for tax calculation purposes.
Furthermore, the Department stated that since virtual currencies are intangible property versus tangible personal property, public law 86-272 will not be applicable to such transactions.
SALES AND USE TAX
New Jersey imposes sales or use tax on retail sales of tangible personal property, specified digital goods, and certain services, unless an exemption is applicable. Since virtual currencies are considered intangible property, the sale and purchase transactions of virtual currencies are not subject to sales and use tax.
Please note, if virtual currencies are used to purchase tangible personal property or taxable services, then such transaction is subject to sales and use tax.
WITHHOLDING TAX
Wages paid in virtual currency are subject to New Jersey’s gross income tax withholding rules.
QUESTIONS?
Please contact the trusted advisors of REDW’s State and Local Tax team. We welcome your questions on state tax treatment of virtual currencies and other state and local tax issues.
