The taxation of NFTs has been an ongoing debate in 2022, with some regulators classifying NFTs as taxable assets. Meanwhile, Washington, Pennsylvania, has taken the first steps to make sure NFTs are taxed.
Washington and Pennsylvania Move to Tax NFTs
In June and July, the US states, Pennsylvania and Washington, emerged as the first in the country to classify NFTs (non-fungible tokens) as digital assets that can be taxed.
Weeks ago, the Department of Revenue in Pennsylvania added NFTs to the state’s taxability matrix. However, it did not provide any guidance on usage and operation.
Meanwhile, Washington’s tax regulator issued a statement defining terms related to NFTs. It also gave a guideline to determine the source of NFTs and how they will be levied.
However, there has been a major issue with taxing NFTs, which is the problem of identification. Most NFT marketplaces do not identify buyers and sellers of NFTs on their platforms
Also, they does not store information about their location or where they live. Besides, the issue of taxing NFTs has been a debate between states and regulators.
Some states believe NFTs are taxable, although they have not formally listed them under taxable products. Other states do not classify them as digital assets that should be taxed.
Washington’s Statement on Taxation of NFTs
Washington’s statement on NFTs is more comprehensive compared to Pennsylvania. According to Washington’s statement, sellers of NFTs are to record the place and time of every transaction.
Also, they are to document the address of the buyers. The statement also defines NFTs, lists the NFTs that are taxable, how an NFT vendor will tabulate their taxes, and how they can source the sales.
The last section of sourcing the sales is the most difficult. Presently, only a few NFT marketplaces or vendors track those who buy NFTs and where they are from.
Specific experts believe Washington’s guidelines will change the activities and practices of the NFT industry. It would remove the anonymity that NFT buyers have enjoyed over the years.
Meanwhile, the statement from Washington is not permanent. The state’s Department of Revenue is still gathering feedback before issuing permanent guidance.
No Clear Federal Taxation Rule for NFTs
Moreover, federal taxation rules on NFTs are not complete. This makes it even more difficult for state regulators to have a clear path to follow.
In 2021, President Biden signed the Infrastructure Investment and Jobs Act. This act requires crypto entities to report certain information on all crypto transactions.
The IRS (Internal Revenue Service) has yet to issue more guidelines on implementing this new order and the taxation of virtual assets.
Meanwhile, the action of both US states on the levying of NFTs is only guidelines interpreting existing laws. They are not enactments of new legislation.
That implies that they may have been utilized in the past. A Pennsylvania Revenue Department spokesman said the agency had the power to tax NFTs since 2016. However, it did not take such action then.