Date: 25 March, 2023
Cryptocurrencies and non-fungible tokens (NFTs) have significantly shifted the financial landscape, prompting policy responses and regulatory frameworks at both the federal and state levels. While we have discussed government opinions on cryptoassets, understanding the larger ramifications of this new asset class requires investigating state-level reactions.
In a recent conversation with Wally Hellerstein of the University of Georgia Law School, we explored the complex tapestry of state-level guidance on taxing cryptoassets. This discussion highlighted the challenges faced by policymakers in addressing the multifaceted nature of these assets, from income taxation to sales tax treatment.
Hellerstein, an authority in state and local taxation, emphasized the daily emergence of new developments, underscoring the rapid evolution of this space. The conversation centered on the need for clarity and consistency in state-level guidance, especially in the face of the vast and interjurisdictional cryptoasset universe.
One significant point of discussion was the essence of cryptoassets as defined by various international bodies, including the OECD. Definitions commonly referred to cryptoassets as digital representations of value relying on cryptographically secured distributed ledger technology. However, Hellerstein cautioned against tethering the definition solely to distributed ledger technology, highlighting the complexity of digital assets that might not fall within this scope.
The conversation also dissected the nuances of tokens within the crypto realm, distinguishing between payment tokens (like Bitcoin and Ethereum), security tokens, and utility tokens (including fungible and non-fungible types like NFTs). Hellerstein provided lucid explanations, simplifying technical jargon for a broader understanding.
A crucial theme revolved around the interplay between federal and state-level guidance, emphasizing how states tend to align with federal treatment but face complexities when applying federal guidelines to sales and use taxes. Hellerstein highlighted cases where states deviated from federal guidance, citing New Jersey’s approach as an example seeking fiscal advantage.
The importance of consistency and conformity among states emerged as a significant recommendation. Hellerstein stressed the need for uniformity, especially in addressing potential issues of double taxation or nontaxation across different jurisdictions. He underscored the role of organizations like the Multistate Tax Commission (MTC) in fostering uniformity among states, particularly in light of emerging challenges in the cryptoasset domain.
The conversation concluded by emphasizing the necessity for ongoing vigilance and continuous learning in this rapidly evolving space. It highlighted the wealth of resources available, from Tax Notes to governmental organizations and global bodies like the OECD, offering valuable insights into this complex taxation landscape.
In a realm characterized by constant flux, this dialogue served as a reminder of the need for consistent guidance, global collaboration, and a vigilant eye on emerging trends in the taxation of cryptoassets. As this field evolves, remaining aware and adaptive is critical to negotiating the complex maze of state-level taxes.
References:
https://www.livemint.com/market/cryptocurrency/navigating-the-complexities-of-crypto-taxation-in-india-11679764005839.html
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