This article is part two of a three-part series. It has been several months since part one, and the worldwide obsession with Bitcoin and other virtual currencies has not slowed down. In part one, we provided a factual background on Bitcoin and other virtual currencies and analyzed whether the sale of Bitcoin is subject to sales tax. For a discussion of these subjects, please refer to part one of this series.
In this installment, we will examine the sales tax implications of accepting virtual currency as payment. In the next installment, we will address the sales tax implications of mining virtual currency as well as some policy considerations of applying sales tax to virtual currency.
Getting back into the sales tax issues associated with Bitcoin transactions, let’s revisit what it is. Bitcoin is a medium of exchange that exists online and has no tangible representation in the physical world.
Bitcoins can be acquired in three ways: (a) purchased with traditional fiat currency; (b) received in exchange for tangible items or services; or (c) Bitcoins can be “mined.” When a Bitcoin transaction occurs, before the Bitcoins are transferred, the transaction must be verified. This verification process is referred to as “mining.”
Daily Tax Report: State
by Jonathan A. Feldman and Christopher Beaudro
October 16, 2018
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