Patrick Camuso, leader of digital asset specialist firm Camuso CPAs, said that the stage is being set for a major drive to draw nonfungible tokens into state-level sales and use tax regimes, which he characterized as "Wayfair 2.0" in terms of its potential impact, referring to the landmark 2018 Supreme Court case that completely upended the world of online sales tax.
Camuso said that he began thinking about this issue when working with a client who was selling physical prints of an NFT he had bought. The two began outlining a tax strategy for this venture, which led to questions as to whether sales and use taxes would apply to these tokens. "The answer, I found, was yes," he said.
He noted that sales of NFTs are taking place across jurisdictions, both state and national, and that tax authorities are starting to take notice. Already there are 31 states that apply sales and use tax to digital goods in a way that he believes would likely include NFTs; meanwhile, the states of Washington, Pennsylvania, Wisconsin and Minnesota have said so explicitly over the past few years, with more expected to agree in the future. He noted that Washington State has been especially aggressive, as it recently said in tax guidance that NFTs have always been taxable, meaning the state can apply retroactive taxation to those who had not been collecting sales tax on NFTs before — which Camuso said is pretty much everyone.
He noted that people are still getting used to how mundane income taxes apply to cryptocurrency — adding sales taxes related to NFTs into the mix adds even more confusion. Because of this, he said, few people are even considering the sales tax implications of NFT transactions, to their great risk.
There is a similar risk with use taxes — he noted that if someone tries to claim NFT losses on their taxes, a state government might go after them for not claiming their use taxes. This is not an issue people should ignore, he said. "Historically speaking, [with regard to] states pursuing use taxes, it's unlikely they do; it's something that's hard to enforce. But all these transactions on a blockchain might be an exception. This is a huge issue largely unaddressed," he said.
Similarly, he said people need to be aware of the application of value-added tax when it comes to sales of NFTs that go through Europe. Working Paper 1060 of the European Union's Value-Added Tax Committee, released in March, confirmed that NFT transactions are subject to VAT in at least a few circumstances. Camuso said that there has also been country-level guidance in several European nations that says so as well (though Italy explicitly said they would not apply it there).
Adding further complication to this issue, according to Camuso, is that there is no software that enables people to appropriately collect sales and use taxes from NFT sales. He said this speaks to a larger issue within the crypto accounting space, namely that there remains a heavy manual element, and so practitioners in this space spend a lot of time going through transaction data in Excel spreadsheets and checking it against what's on the blockchain, and if there is an incorrectly reported transaction, this usually must be updated manually.
All of this combines into what Camuso believes will become a major issue shortly in the future. Tax authorities will start enforcing sales taxes on a population that, historically, has not considered them.
"So, I think that NFT sales taxes are a ticking time bomb. You know all those companies aren't compliant," he said.
