Two States Begin Taxing NFTs | Smart news

Earlier this summer, Washington and Pennsylvania became the first two states to tax the sale of non-fungible tokens, or NFTs. If other states follow their lead, the NFT marketplace, which has relied heavily on anonymity and lack of government oversight, could face new challenges.

In June, the Pennsylvania Department of Revenue “quietly” designated NFTs as taxable, although it provided no further instructions, reports HyperallergenicJasmine Liu. Then, in July, the Washington Department of Revenue issued a statement with preliminary tax guidance, indicating that the state will eventually require sellers to document where purchases take place.

Both states could retroactively collect money related to NFT sales going back several years. The reason, per Hyperallergenicis that the new guidelines are both “[interpretations of] existing law rather than passing entirely new legislation.”

NFTs are non-copyable digital files, which can take the form of anything from concert tickets to Twitter profile pictures. (At the moment, they’re particularly popular in the art market.) They’re a “proof of ownership over a digital object,” The cablewrites Eric Ravenscraft, which is part of the draw of owning one — the value comes from its exclusivity.

Some NFTs are actually quite valuable: NFT sales hit $25 billion by 2021, Reuters’ Elizabeth Howcroft reports. In March 2021, artist Beeple sold one of his NFTs for $69 million. Earlier this year, artist Pak sold his NFT artwork, titled Clockfor over 52 million dollars.

NFTs have always had critics, who denounce them as get-rich-quick schemes, among other things. And the cryptocurrency market in 2022 is not booming like it did in 2021. Still, where money can be made, money can be taxed – and state tax authorities are taking notice, New York attorney Amelia K. Brankov told Art newspaperis Daniel Grant.

Another defining feature of NFTs is the built-in anonymity. NFT transactions happen on the blockchain, which allows people to buy and sell without being tracked. This feature will complicate how NFTs are taxed in Washington and Pennsylvania, explains Art Forumsince many transactions occur between unidentified buyers and sellers in unknown locations.

“In the past, sellers and buyers of NFTs did not evade taxes – they just enjoyed the lack of regulations,” writes ART news‘ Shanti Escalante-De Mattei. “Whether people are willing to explicitly evade tax is a completely different matter.”