Washington Becomes First State to Tax NFTs – ARTnews.com

Washington became the first US state to tax NFTs, the state government announced last July.

The regulations are complicated, and it can be more difficult to enforce them. Tax agencies may have a difficult time determining whether the sale of digital, decentralized, locationless products such as NFTs actually took place in Washington.

The tax regulations assume that sellers of NFTs know where in the world their customer is based, although this is often not the case.

Experts at the Greenberg Traurig law firm wrote that if the seller cannot confirm the location of its customer, the burden of the source’s transaction will fall on the location of the seller’s server. And if that server is in Washington state, the seller will be obligated to pay taxes on the transaction.

In the age of VPNs, which hide one’s server location, this may seem like an easy problem to avoid. But public agencies are catching up to these technological evasions. The Treasury Department sanctioned Tornado Crash, a service that made Ethereum transactions untraceable, in August.

In the past, sellers and buyers of NFTs did not evade tax – they just enjoyed the lack of regulation. Whether people are willing to explicitly evade taxes is another matter entirely, although it is possible given the anonymity and evasions made possible by blockchain technologies.

The Washington guidelines also address the issue of determining the taxable value of one’s NFTs, given fluctuations in cryptocurrency value.

“If a seller receives cryptocurrency in exchange for an NFT, the value of the cryptocurrency offered must be converted to US dollars as of the time of sale,” the regulations state.

NFT marketplaces are also involved in these new tax regulations.

“Marketplaces must collect and remit sales or use tax on all taxable retail sales brought into Washington on behalf of any marketplace seller making retail sales through the marketplace operator’s marketplace,” according to the regulations.

As crypto journalist Will Gottsegen pointed out in a recent article for Atlantic Oceannew rules for cryptocurrencies and NFTs mock the myth that these decentralized technologies are capable of delivering on their utopian goals.

“If [American crypto-companies] choose to abide by the sanctions, they concede that governments can interfere in transactions after all,” Gottsegen wrote. “If they don’t, they risk breaching Treasury guidelines – a move that is not particularly sustainable for a growing industry.”