Most states do not permit the facilitator and seller to negotiate the collection and reporting responsibilities.
Tax & AccountingJanuary 27, 2023

Cryptocurrency and state legislation: the current state of crypto state taxes in 2023

Questions regarding the taxation of cryptocurrency (crypto) can be complicated. Although the IRS addresses crypto transactions for federal income tax purposes, many states have not yet provided any income tax or sales and use tax guidance.  

Before diving into how states currently treat the taxation of cryptocurrency transactions, here's a quick review of how the IRS defines a few key terms scattered throughout the article.

Key cryptocurrency-related terms.

Digital assets.

"Digital assets" are broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology. 

According to the IRS, a digital asset (e.g., virtual currency, cryptocurrency, or crypto) is treated as property for federal tax purposes.

Digital assets include: 

  • Convertible virtual currency and cryptocurrency 
  • Stablecoins 
  • Non-fungible tokens (NFTs) 

Digital assets are not real fiat currency (a currency backed by the government that issued it rather than a physical commodity such as gold, silver, etc.).  

A digital asset that has an equivalent value in real currency, or acts as a substitute for real currency, is referred to as "convertible virtual currency." 1


A cryptocurrency is an example of a convertible virtual currency that can be:

  • Used as payment for goods and services  
  • Traded digitally between users  
  • Exchanged for or into real currencies or digital assets  

According to the IRS, cryptocurrency is a type of virtual currency that uses cryptography to secure digitally recorded transactions on a distributed ledger, such as a blockchain.2 

Current cryptocurrencies include Bitcoin, Ethereum, and Dogecoin, among others.

Authors Note: While cryptocurrency is, by definition, only one type of virtual currency, most people use crypto or cryptocurrency interchangeably with virtual currency.

Tangible personal property.

Tangible personal property is anything other than real property (land, buildings, etc.) or intangible personal property (such as patents, copyrights, stocks, etc.). According to the IRS, tangible personal property includes items such as vehicles, antiques, silver, artwork, collectibles, furniture, machinery, and equipment.13 

Cryptocurrency mining.

This is the process by which new digital coins are created. In addition, crypto mining involves confirming or validating cryptocurrency transactions on the cryptocurrency's blockchain network and adding them to a distributed ledger.

Recent events in the cryptocurrency market.

The cryptocurrency market has been rather volatile recently.  

Take, for example, the collapse of the cryptocurrency exchange FTX in November 2022. According to the criminal complaint filed by the Securities and Exchange Commission (SEC) against the former founder and CEO of FTX, the collapse was due to a lack of liquidity and the mismanagement of funds. The FTX collapse took down other coins with it, including Ethereum and Bitcoin.   

Another example of volatility in the cryptocurrency market is the wild swing in the price of Bitcoin. In November 2021, the price of Bitcoin reached a high of over $68,000, but its current value is approximately $22,800 as of January 24, 2023.  

Considering the nascent history of cryptocurrencies as well as recent events, investment in cryptocurrencies may be deemed high-risk, and the resulting tax issues complex.

How virtual currencies affect income taxes; which states provide guidance on how cryptocurrency affects income taxes

In general, states tend to tax virtual currency transactions the same way the IRS does. They treat virtual currency as property, not money, similar to the way the law treats things like stocks or precious metals.  

That means that each time someone exchanges virtual and cryptocurrencies for something else (including different virtual and cryptocurrencies), the state taxes the amount that the value of what they receive exceeds their basis in the currency. Someone's basis in property is usually what they paid for it, but not always. 

Unfortunately, most states haven't offered much direct guidance so far. Only a few states have indicated how they tax virtual and cryptocurrencies under their income tax laws. These states include (click the link for more detail on how each state taxes crypto for income tax purposes):

All of these follow the federal treatment.  

But the states that haven't directly said how they tax virtual currency generally follow the IRS's lead for their income taxes, and no states so far have opted to treat virtual and cryptocurrencies as money instead.

What apportionment means for virtual and cryptocurrency taxation 

Apportionment is the method for determining which income one state can tax as opposed to another state. Currently, Illinois is the only state to take a position on the apportionment of income from virtual and cryptocurrency transactions.  

Illinois has said that these currencies should be treated like other types of intangible property for this purpose.3

Virtual currencies and sales and use tax; which states provide guidance on the application of sales and use taxes to cryptocurrency transactions

Generally, state sales and use tax is imposed on the sale of taxable tangible personal property and/or services, and virtual/cryptocurrency is digital, virtual, and intangible. But questions for many taxpayers are:  

  • Does sales and use tax apply to tangible goods or services when payment is made with cryptocurrency? 
  • Does sales and use tax apply to the purchase of an intangible item or digital goods, products, property, or assets, such as a digital book, digital audiovisual work, or digital art, that is transferred electronically?  

To date, only a few states have issued guidance on the application of sales and use tax regarding: 

  • Purchasing and/or selling cryptocurrency
  • Paying for taxable tangible personal property and services with cryptocurrency 
  • Mining for cryptocurrency 

Those states are:

Some states do not impose a statewide sales or use tax. Those states are:  

  • Alaska 
  • Delaware 
  • Montana 
  • New Hampshire 
  • Oregon 

Examples of state tax treatment of cryptocurrency transactions

California – virtual currency/cryptocurrency sales and use tax 

In California, sales and use tax does not apply to the purchase or sale of virtual and cryptocurrencies. Virtual and cryptocurrencies are not tangible personal property. 

In more detail: California applies sales and use tax to the sale or use of tangible personal property. When there is no tangible personal property transferred in a transaction, there is no "sale" under California sales and use tax law. As a result, sales and/or use tax does not apply to cryptocurrency transactions (i.e., the buying and selling of cryptocurrency).4

Kentucky – virtual currency/cryptocurrency sales and use tax 

Kentucky provides a sales and use tax incentive for commercial cryptocurrency mining facility purchases. The incentive provides up to 100% of the sales and use tax paid on purchases of tangible personal property to construct, retrofit, or upgrade an eligible project.5 

In addition, the commercial mining of cryptocurrency through the process of blockchain technology at a colocation facility is eligible for a Kentucky sales and use tax exemption on electricity that is used or consumed in the commercial mining process.6

Minnesota – virtual currency/cryptocurrency sales and use tax 

In Minnesota, NFTs are subject to sales and use tax when the underlying product (goods or services) is taxable in Minnesota. NFTs may entitle purchasers to receive products or services including but not limited to: 

  • Digital products such as music, audiovisual works, or video games 
  • Admissions to sporting events or concerts  
  • Prepared food and beverages 
  • Tangible personal property such as collectibles or memorabilia.7 

New Jersey – virtual currency/cryptocurrency income tax

New Jersey provides the following regarding virtual and cryptocurrency income taxation: 

  • If a business pays wages in virtual or cryptocurrencies, the fair market value of the currency paid as wages is subject to withholding. Comment: We recommend you reference cited authority for more information.
  • Independent contractors who are paid in virtual or cryptocurrencies have to determine the currency's fair market value in U.S. dollars as of the date they receive it. 
  • Payment made in virtual or cryptocurrencies is subject to the same information reporting requirements as payments made in other property types.8

New York State – virtual currency/cryptocurrency sales and use tax 

New York State does not apply a sales tax to virtual and cryptocurrencies. In New York State, virtual and cryptocurrencies are considered intangible property. 

In more detail: when a customer uses a virtual currency to pay for goods or services delivered in New York, it's treated as a barter transaction. In New York State, convertible cryptocurrency is intangible property. Since the purchase or use of intangible property is not subject to sales tax, any convertible cryptocurrency received by a part to a barter transaction is not subject to sales tax.  

However, if the party that gives convertible cryptocurrency in trade receives in exchange goods or services that are subject to sales tax, that party owes sales tax based on the market value of the convertible cryptocurrency at the time of the transaction, converted to U.S. dollars.  

If the party that trades property or services in exchange for receiving convertible cryptocurrency gives the other party a sales slip, invoice, or receipt, the first party must separately state the sales tax due in U.S. dollars on the sales slip, invoice, or receipt.9 

Pennsylvania – cryptocurrency sales and use tax 

In Pennsylvania, sales and use tax applies to any digital product transfer, including non-fungible tokens (NFTs), where the purchaser pays a consideration, unless that transfer is otherwise exempt.10 

Washington – cryptocurrency sales and use tax 

In Washington, the Department of Revenue has issued guidance that provides that in order to determine the proper tax treatment of a given transaction involving an NFT, it is critical to consider: 

  • Whether the transaction is comprised of multiple components or merely a digital code which grants the owner access to a digital good. 
  • The taxability of each underlying component. 
  • The identity of the parties to the transaction (e.g., is the purchaser a consumer or reseller?).  

Moreover, the selling price of an NFT is measured by the consideration received by the seller, whether from the purchaser or a third party. According to the department, in some cases, consideration will be received in the form of cryptocurrency. If a seller receives cryptocurrency in exchange for an NFT, the value of the cryptocurrency tendered must be converted to U.S. dollars as of the time of the sale.11 

Wisconsin – cryptocurrency income tax and sales and use tax  

In the state of Wisconsin, payment made using cryptocurrency are subject to information reporting to the same extent as any other payment made with intangible property. Therefore, sales or other exchanges of cryptocurrency may result in ordinary or capital gains or losses. 

In addition, businesses that receive virtual/cryptocurrency in exchange for their goods are services must report gross sales revenue in the amount of the virtual currency's exchange price at the time of the transaction.12


While it is likely that more states will issue state tax guidance on virtual currencies and cryptocurrencies, departments of revenue must first wait for their state legislatures to tackle the issue and, as a rule, legislatures can be notoriously deliberate in addressing emerging topics. 

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