Businesses and individuals now accept Bitcoin and other similar forms of payment for goods and services. This type of payment is called “virtual currency.”
How does tax apply?
Tax applies to sales of tangible personal property, digital products, or services provided in exchange for virtual currency in the same way as any other sale of tangible personal property, digital products or services for a consideration.
Virtual currency transactions between a retailer and a consumer are subject to retail sales tax and Retailing B&O tax measured by the amount accepted in terms of dollars. Generally, this amount is the advertised sale price of the goods or services in terms of dollars.
Example: Your business sells a taxable widget to a customer. The advertised price is $50. The customer pays you 0.134 Bitcoin for the widget. The measure of tax is $50. This is the amount you sell for the 0.134 Bitcoin at the time of the sale.
However, if the retailer does not collect retail sales tax, the consumer owes use tax based on the same taxable value as would apply for retail sales tax and retailing B&O tax.
What tax classification do I apply to virtual currency transactions?
Acceptance of virtual currency doesn’t affect the tax classification of the transaction. Basically, the same classification(s) apply with the virtual currency that apply on a cash, check, debit card, credit card, gift certificate or stored value card transaction.
What if the virtual currency value fluctuates before the business redeems it?
It doesn’t matter. The measure of the tax is not affected by virtual currency fluctuation.
What records should I keep?
If you accept virtual currency as payment, you need to keep records that show what the seller would accept in dollar amounts.
Does the DOR accept virtual currencies as payment for taxes?