New Jersey Issues TAM Regarding Convertible Virtual Currency

September 17, 2015

On July 28, 2015, the New Jersey Division of Taxation issued Technical Advisory Memorandum 2015-1(R), (TAM-2015-1(R)), regarding tax treatment of transactions that involve virtual currency.  The TAM states that virtual currency is a form of “electronic/digital money” that can be used as a medium of exchange or as a form of digitally stored value.  Taxpayers may use the virtual currency, such as bitcoin, to purchase goods or services or to hold for investment. Virtual currency that has an equivalent value to real currency or acts as a substitute for real currency is convertible virtual currency.

NJ states in the TAM that it conforms to the federal tax treatment of convertible currency explained in Notice 2014-21 issued by the IRS.  Since transactions using virtual currency must be reported in U.S. dollars for federal tax purposes, they must they be reported at fair market value in U.S. dollars at the date of payment or receipt.

Regarding sales and use tax, NJ has stated that, per the imposition of sales and use tax under N.J.S.A. 54:32B-3, virtual currency is treated as intangible property and, as a result, the purchase or use of the currency is not subject to sales or use tax.  However, sales and use tax still applies when a person uses the virtual currency to purchase taxable goods or services.  Similar with what is mentioned above, all transactions involving convertible virtual currency must be reported at the fair market value on the date of the transaction.  Any taxpayer who accepts virtual currency as payment for taxable property and services must register for sales tax and report and pay such sales tax due in U.S. dollars.  For more information, click here.

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