The non-fungible token market has multiplied, with NFTs being sold for amounts ranging from tens to millions of dollars. Yet the status of NFT transactions and especially their taxation is left unknown.
NFTs, together with some other products of the digital economy, are left in a grey area when it comes to regulating these transactions. Two states – Washington and Puerto Rico, are set to lead the way by defining some rules on NFT sales.
However, this is not going to be easy. NFT transactions are widely diverse. An NFT could be anything from a work of art, a tangible item, a ticket to an event, etc. Moreover, even if a work of art is purchased as an NFT, it doesn’t grant the copyright to the owner of the NFT. This makes NFT sales difficult to categorize, and assessing their taxation status is nearly impossible.
Washington and Puerto Rico’s idea is to classify NFT sales as subject to the sales tax. Nevertheless, the states have been left with the task of figuring out how exactly the tax regulation should happen. In addition, NFT sales are often anonymous and with no location, meaning that the tax code cannot be assigned easily.
These issues result in a prolonged decision-making process. Even though over 30 states have regulations on digital products in place, it is difficult to apply them to NFTs. A breakthrough is expected as soon as Washington and Puerto Rico implement their regulation and other states begin drafting policies based on their example.