Page 629 - TaxAdviser_2022

TAX CLINIC

South Dakota v. Wayfair, Inc., 138 S. Ct. items. After a specific amount of time
Taxpayers 2080 (2018), several states have enacted has passed with no activity (called a dor-
mancy period), the unclaimed property
factor-based nexus legislation that es-
regularly engaged tablishes nexus for taxpayers that exceed must be remitted to the state, which will
in cryptoasset specific dollar thresholds of business attempt to find the rightful owner (all
transactions across activity in terms of sales, property, or while earning interest on the property).
payroll in the state.
The dormancy period can vary by state
state lines should and depend on the type of property.
A number of states are starting
consider how the Sales taxation to address whether cryptoassets are
Purchase of taxable goods and
states apportion sales services: When cryptoassets are subject to unclaimed property reporting,
of these assets. used to purchase taxable goods and/or either by specifically listing them and
services, a key issue to consider is how providing an applicable dormancy
the state where the transaction is taxed period or including them as part of an
the ability to deduct capital losses will determines the sales price of the item or otherwise intangible catch-all category.
be affected by the holding period of the service being purchased. Although many It is notable that some states expressly
cryptoasset. To date, only a handful of states have yet to provide guidance, most requiring the escheatment of cryptoassets
states have either enacted direct legisla- that have issued instructions say sales also require the holder to liquidate
tion or issued direct guidance regarding tax should be determined based on the the cryptoasset position first before
the income tax treatment of cryptoassets, value of the cryptoasset in U.S. dollars at remitting the proceeds to the state (e.g.,
although most states follow federal treat- the point the transaction occurs. Thus, Illinois and Kentucky). Considering the
ment by considering cryptoassets to be sellers that do not immediately convert ultimate goal is to return the property
property instead of currency. cryptoassets received into cash will need to its rightful owner, these same states
Apportionment considerations: to maintain accurate records to track have often enacted laws to eliminate any
Taxpayers regularly engaged in crypto- historical valuations. recourse against the holder by the owner
asset transactions across state lines Alternatively, some states could for any loss of value after the cryptoasset
should consider how the states apportion choose instead to define “sales price” as was liquidated.
sales of these assets. Some states appor- the listed price for the item expressed in Despite recent price volatility,
tion consistent with how they apportion U.S. dollars by the seller. cryptoassets are here to stay. Accordingly,
the sales of services, by using either a Cryptoassets as investments: practitioners should continue to
market-based method (generally mean- Given the virtual nature of cryptoassets, monitor emerging guidance in the
ing sales are apportioned based on where as guidance continues to be released, it coming months and years, particularly
the customer receives the service) or a is expected that most states will treat the as it relates to the various tax types
cost-of-performance method (sales are purchase of cryptoassets as the purchase covered under the umbrella of state and
apportioned based on where most of of an intangible asset and thus not sub- local taxation.
the costs are incurred to effect the sale). ject to sales tax. From Scott Brawdy, CPA, Honkamp
Other states may treat these assets in a & Co. PC, Davenport, Iowa ■
comparable manner to how they appor- Unclaimed property/escheat
tion sales of tangible personal property, reporting
assigning those sales to their destination. Unclaimed property is property held by Editors
Nexus considerations: For states one party (typically, an insurance com-
Carolyn Quill, CPA, J.D., LL.M., is the
that consider cryptoassets to be in- pany, bank, other financial institution, or
lead tax principal at Thompson Green-
tangible assets, the physical presence company) that is owned by another party,
spon in Fairfax, Va. Richard Mather, E.A.,
requirement to establish nexus under where the property has been dormant,
MSA, CAA, is a director at EFPR Group
the Interstate Income Act of 1959, P.L. with no activity from the owner for an
in Rochester, N.Y.; Jonathan McGuire,
86-272, does not apply. Therefore, it is extended period. Unclaimed property can
CPA, is senior tax manager at Aldrich
likely that cryptoasset sales to custom- be either tangible or intangible, although
Group in Salem, Ore.; and Kathleen
ers in those states would be considered the vast majority of unclaimed property
Moran, CPA, MBA, MT, is a director at
“doing business” for income tax purpos- is intangible in nature, such as securities,
Pease Bell CPAs in Cleveland.
es. Additionally, similar to the economic checking/savings accounts, uncashed
nexus–type laws developed as a result of checks, security deposits, and similar
20 December 2022 The Tax Adviser