TSB-M-14(5)C, (7)I, (17)S — Tax Department Policy on Transactions Using Convertible Virtual Currency
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Technical Memorandum
TSB-M-14(5)C, (7)I, (17)S
Corporation Tax
Income Tax
Sales Tax
December 5, 2014
Tax Department Policy on Transactions Using Convertible Virtual Currency
This memorandum explains the Tax Department’s policy
regarding transactions involving convertible virtual currency for
sales tax, corporation tax, and personal income tax purposes.
Background
On March 25, 2014, the Internal Revenue Service (IRS) issued Notice 2014-21 detailing
how existing general tax principles apply to transactions using convertible virtual currency.
Convertible virtual currency is virtual currency that has an equivalent value in real currency, or
that acts as a substitute for real currency. Virtual currency is a digital representation of value that
functions as a medium of exchange, a unit of account, and/or a store of value. The IRS notice
provides that convertible virtual currency is treated as property for U.S. federal tax purposes.
This memorandum explains the Tax Department’s policy for transactions in, or that use,
convertible virtual currency.
Sales tax policy
New York state and local sales taxes are imposed on the receipts from retail sales of
tangible personal property and sales of certain services delivered by a seller to a purchaser or to
the purchaser’s designee in New York State. The term sale includes a barter transaction in which
tangible personal property or services are given by one person in consideration for tangible
personal property or services received in return from another. See 20 NYCRR 526.7(d). State
and local use taxes are imposed on the use in this state by a resident of property and certain
services that the resident purchased outside the state and then brought into the state for use here.
The term purchase likewise includes a barter transaction.
A barter transaction is actually comprised of two separate sale transactions. Each party to
a barter transaction gives something of value to the other party in order to receive something of
value in return. In a barter transaction, sales or use tax (sales tax) is due from each party based on
the value of the property or services given in trade if what is received in exchange is subject to
sales tax. Services given in trade are taxed based upon a party’s normal charge for the service it
provides.
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. For sales tax purposes, convertible
virtual currency is intangible property. 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.
W A Harriman Campus, Albany NY 12227 www.tax.ny.gov
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Corporation Tax
Income Tax
Sales Tax
December 5, 2014
However, if the party that gives convertible virtual currency in trade receives in exchange
goods or services that are subject to sales tax, that party owes sales tax based on the market value
of the convertible virtual currency at the time of the transaction, converted to U.S. dollars. If the
party that trades property or services in exchange for receiving convertible virtual currency gives
the other party a sales slip, invoice, or receipt, the first party must separately state the sales tax
due in U.S. dollars on the sales slip, invoice, or receipt.
A seller making sales in New York State that accepts convertible virtual currency in
exchange for taxable goods or services must:
• register for sales tax purposes;
• record in its books and records the value of the convertible virtual currency accepted at
the time of each transaction, converted to U.S. dollars;
• record in its books and records the amount of sales tax collected at the time of each
transaction, converted to U.S. dollars; and
• report such sales and remit any sales tax due in U.S. dollars when filing its periodic
sales tax returns.
Example 1: An online retailer registered for New York State sales tax purposes accepts
convertible virtual currency from a customer as payment for home décor items that will
be delivered to the customer’s location in New York State. In effect, the customer has
purchased the home décor items in exchange for the convertible virtual currency, and the
retailer has purchased the convertible virtual currency in exchange for the home décor
items.
Because home décor items are taxable, the customer owes sales tax based on the taxable
receipt for the purchase of the items. The taxable receipt is the fair market value of the
convertible virtual currency in U.S. dollars at the time of the transaction. However,
because convertible virtual currency is intangible property, the retailer does not owe any
sales tax on its exchange of home décor items for the convertible virtual currency.
The retailer must record in its books and records the amount of the sale and the sales tax
collected in U.S. dollars, and report the sale and remit the sales tax due in U.S. dollars
when filing its periodic sales tax returns.
Example 2: A vendor in New York State that accepts convertible virtual currency as
payment creates custom computer software for sale to a client. The custom software is
delivered to a New York location. Since the sale of custom software is not subject to sales
tax, this barter transaction is an exchange of a non-taxable product for non-taxable
convertible virtual currency. No sales tax is due on this transaction.
Example 3: A New York State resident sends her watch to be repaired at a New York
repair shop that accepts convertible virtual currency for its services. Since watch repair
services are subject to sales tax, the resident owes sales tax based on the taxable receipt
for the purchase of the service.
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Corporation Tax
Income Tax
Sales Tax
December 5, 2014
The taxable receipt for the repair service is the fair market value of the convertible
virtual currency at the time of the sale. The repair shop must collect the sales tax and
must separately state the tax from the fair market value of the convertible virtual
currency on any sales slip, receipt, or invoice provided to the customer. The repair shop
must also record in its books and records the amount of the sale and the sales tax
collected in U.S. dollars, and report the sale and remit the sales tax due in U.S. dollars
when filing its periodic sales tax returns.
Corporation tax and personal income tax policy
For corporation tax and personal income tax purposes, New York State Tax Law
conforms to the federal treatment of convertible virtual currency as detailed in IRS
Notice-2014-21. The notice provides that convertible virtual currency is treated as property for
U.S. federal tax purposes. General tax principles that apply to property transactions apply to
transactions using convertible virtual currency. For more information, see IRS Notice 2014–21.
NOTE: A TSB-M is an informational statement of existing department policies or of
changes to the law, regulations, or department policies. It is accurate on the date
issued. Subsequent changes in the law or regulations, judicial decisions, Tax
Appeals Tribunal decisions, or changes in department policies could affect the
validity of the information presented in a TSB-M.