Tax Liability of Non-Fungible Tokens (NFTs) Now Has Formalized Guidance in WA and PA
By John Bonk, National State & Local Tax Leader
Washington and Pennsylvania have become the first states to issue sales tax guidance around non-fungible tokens (NFTs).
NFTs are digital code on a blockchain that can represent real world items such as art. It is important to note that while digital art is likely the most common type of digital code, there are many different types of NFTs, each having its own unique use.
On July 1, 2022, Washington released detailed guidance around the state’s treatment of NFTs. The guidance explains the taxability of NFTs and common issues in applying sales tax. The most concerning issue is determining in which state the sale should be sourced for sales tax purposes.
Pennsylvania earlier released REV-717(SU) on May 22, 2022, providing guidance for all retailers within the state. Under the section for Computer Hardware, Digital Products and Streaming Services, the state newly identified NFTs as being taxable. Unlike in Washington, there was no specific guidance or explanation accompanying the decision as to how the state expects a taxpayer to apply tax to sales of NFTs.
Other than in WA and PA, sellers of NFTs currently are forced to rely on each state’s taxability conclusions with regards to digital products, or on computer software, to decide if they believe NFTs are taxable in a given state. The risk to a company selling NFTs is in states where sellers must rely on their own comparisons; taxpayers run the risk of being held liable for non-collection of state sales tax.
Consult your Marcum State and Local Tax professional for assistance with taxability issues pertaining to the sale of NFTs.