Washington State to Tax NFTs
Washington State has become the first state in the United States to announce that it will issue specific policies regarding the taxation of NFTs (non-fungible tokens). NFTs are unique digital assets that serve as certificates of authenticity for various types of digital products, including collectibles, music and artwork. The guidance will come in the form of an excise tax advisory (ETA), which is a published position of the Washington Department of Revenue. We expect the guidance to categorize NFTs as falling within Washington’s broadly defined category of taxable “digital products.”
Washington has two taxes that use the same definitions. Sales or use tax (imposed at a rate of 6.5%) and Business and Occupation Tax (B&O Tax), which substitutes for an income tax and is imposed on the gross amount of retail sales at a rate of .471%, and on wholesale sales at a rate of 484%. The ETA is expected to conclude that sales of NFTs made to Washington purchasers are subject to both taxes. Most large Washington municipalities also impose their own separate B&O tax that piggybacks on the state definitions.
Presumably the ETA will provide guidance on how a Washington sale is determined, as well as instructions on the potential tax liabilities of NFT sellers located both inside and outside of Washington. We expect additional states to address the issue of NFT taxation in the near future.