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More States Add Cryptocurrency Twist to Marketplace Sales Tax Laws

Aug. 8, 2019, 8:46 AM

Online marketplaces that allow or plan to allow customers to make purchases with virtual currency may unknowingly be setting themselves up to collect sales tax in more than a dozen states.

At least 16 states have a special provision in their marketplace facilitator laws that put marketplaces on the hook for sales tax collection if the business provides the option to pay with virtual currency to customers, according to Bloomberg Tax data. Marketplace facilitator laws require businesses like Inc. and Etsy Inc. to collect and remit sales and use tax on behalf of their vendors if they cross a specific threshold in the state.

An example of such a currency could be Facebook’s newly announced Libra cryptocurrency. Another is “credits” that can be purchased with cash and then used to buy upgrades and merchandise within video games through systems like Microsoft Corp.'s Xbox or Sony Corp.'s PlayStation consoles, according to Mark Nebergall, president of the Software Finance & Tax Executives Council.

Alabama, California, Idaho, Iowa, Massachusetts, Nevada, New Jersey, North Dakota, Ohio, Kentucky, Rhode Island, Utah, Vermont, Virginia, Washington, and West Virginia currently have provisions that classify a marketplace facilitator as an entity that provides “a virtual currency that buyers are allowed or required to use in order to purchase products from the vendor.”

States could be planning for the day a marketplace giant—say Amazon or eBay Inc.—introduces a virtual currency of its own. However, so far, the virtual currency provision is not a moneymaker, according to Nebergall.

“I’m not sure if states without the provision are missing out on potential revenue,” he said. “It would be very hard to tell. If it happens they are, it isn’t much.”

Cryptocurrency is still in its infancy. It isn’t regulated by the federal government, and it isn’t used ubiquitously. However, some marketplaces such as allow purchases to be made with Bitcoin—arguably the most well-known form of cryptocurrency.

States sprung at the chance to tax marketplace facilitators after the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair tossed out its 1992 physical presence standard affirmed in Quill Corp. v. North Dakota that limited the ability of states to tax remote sales. The majority in the 5-4 ruling suggested strongly that South Dakota’s law would pass constitutional muster.

Since the ruling, dozens of states have adopted a marketplace facilitator law.

Following Washington

Richard Cram, director of the Multistate Tax Commission’s National Nexus Program, said states with the cryptocurrency provision might have just copied Washington, the first state to draft a marketplace facilitator law back in 2017.

“Many states borrowed their bill language from Washington, a state that has a broad definition of what constitutes a marketplace facilitator,” Cram said. “All other states likely follow a narrow definition.”

If a company’s sole purpose was providing a virtual currency for use, then they wouldn’t be classified as a marketplace facilitator in states that use a narrow definition, according to Cram.

“Washington most likely thought or thinks that virtual currencies are going to eventually be a hot trend and wanted to get ahead of the game,” Cram said. “So far the trend hasn’t materialized as quickly as folks thought.”

Amazon, eBay, and Etsy didn’t immediately respond to requests for comment.

To contact the reporter on this story: Ryan Prete in Washington at

To contact the editor responsible for this story: Jeff Harrington at