In a recently released memorandum the New York State Department of Taxation and Finance says that Bitcoin is to be treated as “intangible property” and transactions will not be subject to sales tax. Earlier, the IRS had officially stated that Bitcoin is a property, similar to any other valuable commodity and not a currency.
There are various ramifications of the new definition by the government body wherein it says that the use of convertible virtual currency by a customer to pay for goods or services delivered in New York State is treated as a barter transaction. It further reads that for sales tax purposes, convertible virtual currency is an intangible property.
According to the released memorandum, since the purchase or use of intangible property is not subject to sales tax, any convertible virtual currency received by a party to a barter transaction is not subject to sales tax. The document gives various scenarios to highlight that goods and services received under various circumstances would themselves still be liable for sales tax.
The Ruling Makes Perfect Sense, Says Bitcoin Association Co-Founder David Mondrus
As soon as the memorandum came to the public domain, it started receiving various opinions from stakeholders. The first reaction came from Bitcoin Association Co-Founder, David Mondrus who admitted that the ruling, while making perfect sense due to the IRS guidance, is yet another example of the old rusting monolith that is government showing its irrelevancy.
According to David Mondrus, the law only applies to the New York resident in the transaction, since the Supreme Court ruled in 1992 that only companies with a presence in a state are liable for the collection of sales tax. He also informed that tax compliance use is notoriously low for internet purchases.
He concluded that since barter transactions are rare in the non-Bitcoin world, it is complex to most consumers and merchants, almost ensures that compliance with this ruling will be low. Interestingly, the proposed bill calls for a 5-year freeze on further legislation regarding cryptocurrencies at the national level.
It also asks for further tax exemptions and, in contrast to the New York declaration, treatment of virtual currencies as currency instead of property. This has delighted those who felt vindicated after the IRS asked that a payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
To contact the reporter of this story: Deepak Tiwari at email@example.com