Pennsylvania and Washington enact rules explicitly bringing income from sales of non-fungible tokens within the states' tax base

Pennsylvania has added NFTs to the list of properties subject to the state’s sales and use tax provisions. This addition, effective as of June 11, 2022, was not accompanied by additional guidance or discussion surrounding implementation points considered key to taxpayers and their agents, such as what constitutes the Pennsylvania sale of an NFT, how to determine the buyer’s location or whether the Department of Revenue’s new position will be applied retroactively or prospectively, although the Department has since asserted that it would be within its rights to extend the tax retroactively to transactions that occurred as far back as 2016.

For purposes of sourcing a sale, Pennsylvania is likely to use a customer’s billing address as a proxy for where a sale occurs based on prior Department of Revenue guidance regarding the sourcing of remotely accessed software.

For transactions where a customer’s billing address is not known, it is unclear at the moment how or if Pennsylvania intends to attempt to ascertain sale location by other means. The sales tax rate in Pennsylvania is 6 percent of the purchase price.

In contrast, on July 1, 2022 Washington released an Interim statement regarding the taxability of non-fungible tokens that outlines how sellers of NFTs (including “marketplace facilitators”) should comply with the new requirement to collect and remit the state’s 6.5 percent sales tax and reflect the proceeds of such sales including royalty income in their Business & Occupation tax base.

Notably, sales are sourced consistent with the hierarchy of methods described in RCW 82.32.730(1) already applicable to retail sales. Under those sourcing guidelines, a sale occurs where the purchaser receives the NFT (ie, takes possession or makes first use of the digital codes). If that location cannot be determined, sellers should source the sale based on the address supplied by the purchaser obtained during the consummation of the sale.

The Washington State Department of Revenue plans to further develop its guidance on NFTs based on input from external stakeholders, who may submit comments to Nikki Bizzarri at (360) 534-1582 or nikkib@dor.wa.gov.