Non-Fungible Tokens, or NFTs, have been creating quite a stir ever since stories about a piece of digital art selling for $69 million broke in early March. NFT technology is a new way to prove ownership of a digital product, and the blockchain-based tech has captured the attention of both collectors and artists alike.
At PMBA, we are watching the growth of the NFT market, as the potential swell of online sales could have profound sales tax implications. There have already been large organizations who have dove head-first into this form of data exchange, selling away “originals” of songs, sports highlights, and even tweets. The question remains, though, how will NFT sales be taxed?
NFTs and Sales Tax
Currently, there are no specific sales tax rules associated with NFTs, likely because of their novelty. However, many states charge a tax on the sale of digital goods (e.g., video games, songs/albums, eBooks), and NFTs may be subject to the same regulations in the near future.
If they become taxable, then the market opens itself to complex sales tax regulations regarding online sales. In the landmark Wayfair v. South Dakota case, the Supreme Court ruled that a seller does not need to have a physical presence in a state to be liable for sales tax. Instead, they simply have to reach a revenue and/or transaction count threshold in the state.
Consequently, this could mean that large NFT retailers will be liable to collect and remit sales tax if they meet a certain threshold. And, it gets even more complicated for global sellers looking to enter the US – something to keep an eye out for as many of the most significant sales have been multinational.
Still, the future for NFTs is uncertain – but if they drum up enough revenue in sales, state legislators are bound to notice and implement tax regulations.
If you’re looking to get into the market and are concerned about potential tax obligations, reach out to one of our sales tax experts today!
Are NFTs subject to sales tax? The profoundly complex cryptocurrency phenomenon comes with equally complex tax implications. Learn more!