[00:00:08] Speaker A: Welcome to Taxing poetic. I am your host, Tim Howe.
[00:00:12] Speaker B: And I'm your other host, Jenny Carter.
[00:00:15] Speaker A: Along with our esteemed producer, as always, JV. Hello. And today we are going to be talking about crypto and virtual currency and the impacts on sales and use tax. And as always, this episode is brought to you by Sonexis Tax Solutions. Hey, Jenny.
[00:00:30] Speaker B: Hi.
[00:00:31] Speaker A: How are you?
[00:00:31] Speaker B: I'm good.
[00:00:32] Speaker A: Awesome.
[00:00:33] Speaker B: I'm going to open this episode with my normal haiku.
[00:00:36] Speaker A: I love it.
[00:00:36] Speaker B: Are you ready?
[00:00:37] Speaker A: A crypto haiku. Here we go.
[00:00:38] Speaker B: Okay.
[00:00:38] Speaker A: It'll be virtual.
[00:00:39] Speaker B: It's going to kick us off. Okay. It'll be okay. All right.
Cryptocurrency, you are pretty confusing. Is it like Minecraft?
Because this will just tee you up that I'm going to let you two do all the taxing poetic this episode, because I have taken two crypto classes and I still know nothing.
[00:01:06] Speaker A: I feel like it is a confusing topic and it is just rapidly changing. And so I think JB had kind of prefaced me just to be in full disclosure. He said, you better come out and tell everyone that this is going to change dynamically. And it's the truth. I mean, just like the value of cryptocurrency changes every single day, if not every single hour and every minute. The tax laws and the treatment of cryptocurrency is a radically changing environment. Right. And I know enough about cryptocurrency to be dangerous. I could speak intelligently to it. I know enough about it. You probably talk to my nephews, and they would know ten times about crypto, ten times more about crypto than I do. But it is quite interesting when you start looking at the overall tax impacts of cryptocurrency. I think we're going to start off and maybe even talk a little bit about income tax impacts and what would happen in a generic cryptocurrency type transaction and whether you have capital gains or losses. And how are you actually tracking your basis of the cryptocurrency, and what does that basis look like, and how does that impact your overall income tax? But then we're going to get into the meat of it, which is sales and news tax and the impacts on certain types of crypto transactions and how certain states are actually treating it. Right.
[00:02:26] Speaker B: Should we start with, like, a sales tax 101 or like, our crypto 101?
[00:02:30] Speaker A: Yeah, we should just talk about crypto in general and what it is.
[00:02:33] Speaker B: Well, because per my haiku, I'm like, I know they're mining for something like so, and they're opening boxes and it's like Super Mario Brothers or something. And then there's stars that come out of the boxes and then that's about all I know.
[00:02:48] Speaker A: And to be honest with, like, the whole mining component, we should probably maybe even have an episode in the future of somebody who's a crypto miner that understands that entire process and how that works. All I know is they set up huge server farms that can basically consume massive amounts of power to be mining for bitcoins and mining for other types of cryptocurrency. And they're basically looking for certain types of token ids or something like that that basically allows them to increase and capture value of bitcoins at that point.
It's interesting, in all honesty, that component of the cryptocurrency market, I really don't understand.
[00:03:26] Speaker B: Same again, I'm like, it's Super Mario Brothers. I don't know.
[00:03:32] Speaker A: It's a very interesting facet of, and I think why regulators have a real problem with, I mean, you can't go out mining for dollars, right? I mean, some people could say, well, yeah, you can go out and collect cans in New York City and basically turn them in for their deposits.
[00:03:48] Speaker B: That helps me a little. Okay.
[00:03:50] Speaker A: Yeah. And get money back. Right.
You could mine for mine. Hey, you can go to that national, what is it, the state park in Arkansas and get diamonds, right?
[00:03:58] Speaker B: For real?
[00:03:59] Speaker A: Yeah, there's a state park in Arkansas that you can go to. Some dude just yoked out like a four karat diamond or five carat diamond or something like a month ago. Yeah, it's a big state park that you can turn around and go and find diamonds.
[00:04:11] Speaker C: All money is confusing if you really. I mean, it's true.
[00:04:14] Speaker A: Have you ever read about space?
[00:04:15] Speaker C: It's just diamonds up there. It's just all diamonds. We just don't have that many down here. So we're like, these are fancy.
[00:04:20] Speaker A: Yeah, exactly.
[00:04:22] Speaker C: We don't know.
[00:04:23] Speaker A: Well, and also the rumor is, too, is that companies like debiers that control majority of the diamonds in the world, if they released all the diamonds that they actually have onto the market, the value of a diamond would deflate to like 100%. It would deflate to like, zero, but they naturally hold and keep the diamonds actually artificial.
[00:04:40] Speaker C: And that's kind of the idea behind bitcoin as well, is that there is a finite amount in every four years, it halves. So eventually there will only be 21 million, and then that's it. It stops doing that and you can't make any more. Actually something that gets financed. But cryptocurrency, just the definition, is a digital money that doesn't require a bank or financial institution to verify transactions for you to make a purchase or investment.
[00:05:05] Speaker B: Okay?
[00:05:06] Speaker C: It's on its own system. If a bank were to crash, you could still have a bitcoin.
[00:05:10] Speaker B: Okay?
[00:05:12] Speaker A: And it is why it proliferates and screams non standard transactions. And we talk about non standard transactions. This is why crypto has gotten such a bad name for so long. You're talking drug lords and other types of people who are trading and using bitcoin because it's not traceable. Right? You can't trace it. You can't follow it. You can't really identify anything that happens in a crypto transaction because there's no financial institution, or should I say regulatory agency that actually tracks the movement of crypto.
[00:05:45] Speaker B: So it is like Mario Brothers, there's like Bowser, and he's know the drug lords and crypto lords are trying to defeat you.
[00:05:51] Speaker A: Well, regular.
[00:05:52] Speaker C: I mean, Starbucks accepts bitcoin. It's not all bowsers.
[00:05:54] Speaker A: It's not all bowsers, no. And that's the thing, is that there's a number of legitimate institutions that accept bitcoin. I mean, we've got a country now, right, El Salvador, that pegged their national currency to be, you know, it's legit. It's legit on a number of different facets. But at the same time, you also have a large component of the crypto market that is truly what we would consider to be dark web or black market type transactions, because they just can't be traced. If you lose a bitcoin, like, if somebody steals a bitcoin from you, you're never going to find it again.
Yeah. There's no tracing it. There's no finding it.
[00:06:31] Speaker B: And I like your analogies from earlier, like with the picking up the cans or mining for gold. So basically it's the same like if I lost $20 in the street and someone picked it up, how are you going to prove that?
[00:06:43] Speaker A: But see, the thing is, if I also exchange $50,000 with you, and you go to the bank and you deposit that $50,000, the bank actually has to record that $50,000 transaction to the IRS.
[00:06:55] Speaker B: Okay.
[00:06:56] Speaker A: And all of that stuff gets recorded with your name on it and gets reported to the IRS as, quote, unquote, like income. Right. It would be something that you would ultimately, hopefully report on your income tax return. Otherwise, people are going to get some questions to you as to why you didn't report it. But with bitcoin, you don't have that. That's why they ask you on your federal income tax return, right. Of, hey, one of the big things, at any time during this year, did you receive, sell, exchange, or dispose of any financial interest in any virtual currency? They're giving you the opportunity to come forth and be forthright with it. And that way they're also kind of trapping you that if they ultimately ever find that you're transacting in millions of dollars in bitcoin and you didn't ever report it, guess what? You're going to owe income tax on it. So it's a very dynamic and interesting environment that the US is trying, and other countries, frankly, are trying to get their arms around, right? China has basically outlawed. They outlawed.
[00:07:55] Speaker B: Oh, really?
[00:07:56] Speaker A: Yeah. China has basically outlawed bitcoin.
[00:07:58] Speaker B: Oh, wow.
[00:07:59] Speaker A: And there's a lot know, fraud. I mean, SBF, right. Sam Bankman, fried. You know, you go read the entire stories about him and his investment firm, FTX, that story in and of itself and how huge it is. And this is going to be an amazing movie when somebody turns around and turns in, but this is a guy that was effectively just came up with this whole currency cryptocurrency, excuse me, like kind of exchange market, and then had a fund that went along with it. And he started borrowing money from the fund illegally and using it to fund his business operations, which you're totally not supposed to do. It's against SEC regulations and a bunch of other regulations. Guess what? That's why he's getting ready to go to jail. But it's very, very interesting when you hear and peel back all the layers of that onion. You have people like Tom Brady involved.
[00:08:49] Speaker B: I was just about to say that's why they think Tom Brady and Giselle got divorced. That's what I'm hoping, anyway.
[00:08:54] Speaker A: Oh, my God.
[00:08:55] Speaker B: Because maybe they'll get back together, lost.
[00:08:57] Speaker C: A lot of money.
[00:08:57] Speaker A: Queen of pop culture references.
[00:08:59] Speaker B: Yes, but no, but for real, they were like, because of his investment in bitcoin or whatever, with FTX. Yeah. They were trying to limit liability for him or her, whatever. So, yes, he was hoping. Fingers crossed.
[00:09:10] Speaker A: Well, at the end of the day, it's a very fluid and dark world to kind of get involved in, but we're going to start talking a little bit about sales tax impacts of it and what actually happens when you transact in bitcoin.
[00:09:27] Speaker C: We started that.
[00:09:27] Speaker A: Or not even just bitcoin, but all virtual currencies. And virtual currencies are a number of things. Right. We have dogecoin. Right? We talk about Elon and the stuff that he did around dogecoin.
Shibu inu.
[00:09:38] Speaker C: Yeah, I think probably for the ease of our listeners, we'll probably just talk about bitcoin.
[00:09:45] Speaker B: Yeah, well, for me, Jenny, because you.
[00:09:50] Speaker A: Have Ethereum, you have doge, you have shibu inu, you got alarm.
There's a lot of different coins out there. I mean, anybody can make up a coin every day. But see, what you also have in these types of scenarios is people getting busted for artificial inflation of a currency. So you go and you latch yourself on to a couple of celebrities, and you tell these celebrities, hey, go out on your Instagram and other platforms and start talking about this awesome coin. And then people will turn around and start buying the coin like crazy, and it shoots the value up. And then what these guys do is they call them pump and dump schemes, right? So they pump the value of these currencies up super high, and then all the folks that are holding a bunch of the coins start dumping them and selling them, and it causes the currency to crash. So the people who are the founders and own the majority of the coin stake and made out like bandits when they sold it when it was high. All the rest of us Cretans and laymen that basically followed on to the entire hype of the transaction are now left with something that's completely worthless.
[00:10:51] Speaker B: So what you're saying is we should have a synexis coin.
[00:10:54] Speaker C: Go ahead, go ahead.
[00:10:56] Speaker A: Everybody else starts one.
[00:10:57] Speaker B: Anyone can create a coin or just.
[00:10:59] Speaker A: Jenny coin, and you can have Timmy coin.
[00:11:01] Speaker B: Timmy coin.
[00:11:02] Speaker A: There you go.
[00:11:02] Speaker B: JB coin.
[00:11:03] Speaker C: See who does better.
[00:11:03] Speaker A: Yeah, exactly.
[00:11:05] Speaker B: Who can get the biggest celebrity? JB's my celebrity.
[00:11:09] Speaker A: I love it.
[00:11:09] Speaker B: Okay, so for the sake of listeners and myself, we're going to use the word bitcoin, which is a type of cryptocurrency.
[00:11:15] Speaker C: We're going to really talk about things in terms of bitcoin. That's the one that's the most sort of, like, accepted.
If they start to talk about regulatory things with cryptocurrency, they're talking about bitcoin etfs. And there's things. It's all going to come down to bitcoin and less of the shitcoin, which is what the other ones are called.
[00:11:34] Speaker A: That's exactly, yeah. I mean, you can actually find, and there's a gas station that's, I know up in Hamilton Mill around an area where I live. Basically. They actually have an atm that is a bitcoin atm.
[00:11:47] Speaker C: I've seen those?
[00:11:47] Speaker A: Yeah. To where you can convert and you can log into your account and you can convert bitcoin into US dollar and actually withdraw uS dollars right there. And they shave off a percentage.
[00:11:57] Speaker B: Wow.
[00:11:58] Speaker C: So back to our, we started to talk about the scale.
[00:12:01] Speaker A: We've been all over the map.
[00:12:02] Speaker C: Example, but. So Starbucks, for example, will accept bitcoin. So question for you, Tim, would be, if I go into Starbucks today and I buy a cup of coffee, bitcoin right now is worth $43,120.
Do I pay sales tax at the end of that year on the 43,000, or does it change depending on the value of the coins? Do I see later how much sales tax I pay?
[00:12:36] Speaker A: Well, it would be, if you're talking right now, given the time that we're discussing this, I guess you could technically say the end of the year because it'd be the end of December. Right. But if we would be the end of the month. Right. That's when your sales tax would have to be reported. So naturally it depends on the state. Certain states say that it's the value of the advertised price of the transaction that you would pay sales tax on. So I think Washington's one of those states. So Washington would say, okay, if you're put on a menu board that the cost of a cup of coffee is $5, you're going to pay sales tax on them, $5 regardless of when the value of the currency is. So if you exchange bitcoin and its value on that day was $4.90 and it grows to $5.10. Hey, guess what? You ultimately made out like a bandit because you're only paying tax on the $5 sales tax. Accumulated $5. Now other states, like New Jersey and New York, they'll say you owe sales tax based off of the value of the coin on the day that it was exchanged or received.
[00:13:36] Speaker B: So the 510.
[00:13:37] Speaker A: That's right, it would be the 510 or let's say the 490.
[00:13:40] Speaker B: Okay.
[00:13:40] Speaker A: Right. So much more documentation intensive. There's a lot more required in those particular jurisdictions to show when you actually received the coin, what the value was at that specific time when you took possession of it, and things of that nature. Whereas in Washington, it's just like we don't care. This is ultimately an accounting issue that you need to account for for how long you hold on bitcoin before you convert it to the US dollars. And we'll talk about all that here in a minute. But there are two differing fields of thoughts, and the two differing fields of thoughts are. Is it the advertised price, or is it the corn price? Obviously, as usual, the states can't come to an agreement.
[00:14:17] Speaker B: So, Tim, can you explain to me what the benefits are for how the different states value bitcoin for different.
[00:14:26] Speaker A: When if you're looking at Washington versus New Jersey and New York, Washington's really getting no benefit because all they're doing is what they've done historically, which is just saying, okay, whatever the value of a transaction is on that particular day, or the advertised price. Excuse me. Is on that particular day, is what you pay sales tax on.
[00:14:44] Speaker B: Okay?
[00:14:45] Speaker A: So if I valued a chicken sandwich transaction and my meal price on a chicken sandwich transaction is $4, I'm getting tax on the $4 regardless of the value of the currency that I use.
[00:14:55] Speaker B: Okay.
[00:14:55] Speaker A: But what New Jersey and New York are doing is they're saying, hey, this thing fluctuates a lot. There could be some benefit, or we could have some risk of losing some money, but we're going to do it based off of the value of the currency at the date that it was exchanged. Right. At the date that it was received by the state. Now, that causes some serious documentation issues. Right? You have to basically document, okay, well, here is the value.
What I'm guessing is here was the advertised price of the transaction. Here's the type of coin that was used. Here's the actual date that the consideration was exchanged for that coin and when possessory interest actually occurred and changed hands. And then guess what? This is now the value of the currency at that particular time. And that is what the sales tax is going to be owed on. So if I had a $5,000 used car and I bought it with $5,000 worth of bitcoin, well, guess what? Then two days later, the value of bitcoin increased to $5,500. Well, then I'm going to end up paying sales tax on the $5,500, okay? Because that was the value of the bitcoin at that point.
[00:16:04] Speaker B: And that's the New Jersey, New York.
[00:16:05] Speaker A: That's the New Jersey and New York way.
[00:16:06] Speaker B: Okay, so they're kind of gambling on.
[00:16:08] Speaker A: They kind of are gambling, right? And it's really kind of strange that they would do that. But, hey, that's fine. You ultimately are making more money.
[00:16:16] Speaker C: You could make out if it goes down. So if it's worth 43,000 today and it goes down to worth 20,000 in five days, which we've seen happen before, you pay significantly less tax.
[00:16:27] Speaker A: Right. And so the consumer makes out and the states lose out. Right? So that's the thing. They're risking. They're taking a total value risk of the fact that they're betting on the fact that hopefully it's going to go up.
[00:16:42] Speaker B: Okay.
[00:16:42] Speaker A: Yeah.
[00:16:43] Speaker B: Wow, that sounds like a big gamble. Why don't just do it on the.
[00:16:50] Speaker A: Mean? I completely agree, and I do not know why.
[00:16:53] Speaker B: Okay.
[00:16:54] Speaker A: I don't understand New Jersey and New York's justification behind it, except for the fact that I think the value of the currency, because it's changing so drastically, they just want to make it easy from a measurement standpoint to say, well, here's how much it was worth at the time that it was exchanged. Boom, that's what we're going to turn around and tax you on. Right. For the exchange of the consideration.
Again, I haven't done enough research to understand their justifications. I'm sure I can read their regs and probably find out why. It doesn't make a lot of sense to me.
[00:17:20] Speaker B: We can ask Donna to research it.
[00:17:22] Speaker A: Yeah.
And this is the problem.
I frankly have not really spent a lot of time on this type of work and looking at this stuff because it's such in its infancy. Right. It's the same thing. The federal government hasn't been able to do anything regarding the regulations of cryptocurrency, and it's just such a highly volatile market that hasn't really played a lot into the sales and used tax marketplace yet. There's a lot of stuff, transactions that occur. You hear about blockchain and things of that nature.
A lot of those. We're even dealing with basic sales tax issues because, okay, well, if I can't trace cryptocurrency and I don't know who started the transaction and who actually sold it, they're not going to want to report where the stuff goes either. So I don't know where to appropriately tax it. So how do I know where it's being shipped right now? There's a lot of above the board businesses, I'm sure, that want to, like. Ethereum is a great. It's been a currency that a lot of people have talked about that it's a business currency. People want to use it for ecommerce and business type transactions. You're going to see and be able to understand where goods are being delivered and all this other stuff so that we can appropriately tax transactions based off of destination based sourcing. Some of these others, though, like with bitcoin and stuff like that, if you're not recording a ship to address or where somebody's located how are you going to tax something?
Don't know.
[00:18:48] Speaker B: Are these the only three states that have passed bitcoin legislation?
[00:18:52] Speaker A: It's the ones that I've focused on, I've looked at for this episode. But frankly, I haven't done a deep dive to see if any of the other states have actually addressed it. No.
[00:19:00] Speaker B: Yeah, I was just curious.
[00:19:00] Speaker C: Well, if you were somebody who is thinking about their company as like, okay, I'm going to start to accept bitcoin.
What should they be prepared to talk.
[00:19:09] Speaker A: To you about if you're going to accept bitcoin?
The thing is that.
[00:19:17] Speaker B: What if some of our online retailer clients start accepting bitcoin?
[00:19:22] Speaker A: What are we going to tell them? Go talk to an attorney. I mean, in all honesty, there are so many other questions that I have regarding bitcoin and the usage of bitcoin that it just concerns me as a business owner because it'd be like somebody coming to me and saying, hey, I want to pay you in bitcoin.
I don't know if I'm going to accept it. Right. And the reason, I don't know if I'm going to accept it because I'm assuming a risk, I mean, you look at the volatility of bitcoin, it could be worth what JB like last year, at some point, bitcoin had lost like half of its value, right? And then it's clawed its way back. And that's the thing is some of these currencies, they just change so much and so quickly. It's not like the US dollar. Yes, the US dollar does change in value. The EU or the euro changes in value. The yuan changes in value. The ruple, all these different foreign currencies, they will change in value on a daily basis, but not to the drastic levels that you see with some of these.
[00:20:26] Speaker C: Well, how do they handle that? Now if I go into a store and I buy all my groceries with Juan and the price on, are they using the Washington model where I pay for the cost of the goods or am I doing the fluctuating?
[00:20:40] Speaker A: Well, that's the interesting thing. So obviously in the United States, you can't walk into a grocery store and pay with.
They can't, they won't accept it.
[00:20:50] Speaker B: Nice try though.
[00:20:51] Speaker A: But you have to go to a bank to actually sell it. And what the bank would actually do is sell you dollars based off of the current rate of one at the bank as to what they would basically buy it for. And so they're going to buy it from you at x rate, which is going to be less a percentage that they would get to do their currency transformation to actually get it back into us dollars and go and sell it. So the bank's going to make money off of that currency transaction.
[00:21:15] Speaker C: Maybe that's how it works. You'll go into a grocery store and it's like you sliding a credit card and you pay a transaction fee.
[00:21:21] Speaker A: Okay, now you're coin. Now you're talking. So if you are a Japanese, or let's say a chinese national and you're here in the United States, and let's say your company is paying you in, um, or japanese yen and you have a bank account that's full of yen, when you go and you swipe your credit card, there is a currency translation that occurs, and it is a currency translation that is very unfavorable to the consumer. You get hammered for credit card fees and you also get hammered for currency translation fees. And they give you basically a currency rate that is not favorable to you at all. Right? And you're going to lose money on that.
[00:21:58] Speaker B: But it's the ease of use, almost like ATM fees.
[00:22:00] Speaker A: That's exactly it.
[00:22:01] Speaker B: Yeah, that's why you're getting hammered with it. So does bitcoin have the same flexibility? Are there cards you can use right now?
[00:22:08] Speaker C: I mean, maybe that's where they're know, because how else would you.
[00:22:10] Speaker A: There are virtual know. They have other cards.
[00:22:13] Speaker B: But not a piece of plastic.
[00:22:14] Speaker A: No, actually, I think there is a piece of plastic that you can have that's backed by bitcoin that would actually do the, I mean, I think Coinbase and some of those guys actually have a card that's issued that does the translation. I think sofa would even do it. But yes.
[00:22:27] Speaker B: So what if our clients had customers that use those kinds of currency? That would work, right?
[00:22:33] Speaker A: Because it would 100% work. Yeah, you can accept it. But again, this show is to not advise people on financial basis transactions. And I'm going to tell you right now, you should not be listening to a sales tax person give you advice as to whether you can accept bitcoin or not. I would say there are thousands of other questions that you should be answering yourself because of the volatility of it. Hey, think about it this way. I'm a business owner and I sell you a plant, and that plant is worth $100. And I take $100 worth of bitcoin from you, and tomorrow bitcoin completely crashes and you haven't had a chance to exchange that bitcoin. Guess what? You're left with $0 so how am I going to pay for my plants and how am I going to replace my new plant? It's a very valid question. Whereas opposed to I have us dollars and a lot of people can say, well, hey, the US dollar could completely collapse tomorrow. Highly unlikely event. Right.
I would say that, know, very unlikely.
[00:23:28] Speaker C: As opposed to you'd have other problems.
[00:23:30] Speaker A: You would have a lot of other problems. My question, not be worried about selling plants at that point.
[00:23:34] Speaker B: Yeah. Why didn't you take care of the plant? I mean, don't buy a plant if it's going to die the next day anyway.
[00:23:40] Speaker A: The dying of the plant.
[00:23:41] Speaker C: That was the part you were paying attention.
[00:23:43] Speaker B: Yes, exactly. I don't understand anything else, but the plant died and I was sad.
[00:23:47] Speaker C: Okay, well, one of the reasons we started this conversation was about nfts and the way that the government handled the taxes.
[00:23:54] Speaker A: What is an NFT JV?
[00:23:55] Speaker C: Non fungible token.
[00:23:57] Speaker B: You know what fungible means? I had to look this up.
[00:23:59] Speaker A: Nope.
[00:24:00] Speaker B: Fungible means easily interchangeable. So if it's non fungible, then it's not easily interchangeable.
[00:24:06] Speaker C: Non easily. That sounds like it's double.
[00:24:08] Speaker A: I know, it's double entendre.
[00:24:10] Speaker B: Non easily interchangeable.
So I just thought that was interesting.
[00:24:14] Speaker C: It is interesting.
[00:24:15] Speaker A: Double negative. Excuse me, I was using big words.
[00:24:17] Speaker C: They got into the tax thing really quickly.
Can you expand upon that, tim?
[00:24:23] Speaker A: Well, yeah, NFTs are basically, if you go out and you look at what NFTs are represented in the crypto or virtual currency space, it's like pieces of artwork. Right? So board Ape Yacht Club is a famous one, right?
It's a bunch of funny pictures of different types of monkeys that guys know, different artists have created and all these other things. And you could go out to an auction site and actually buy a board ape NFT. And there was a limited amount of these board ape NFTs that were issued, and it gave you access to a special website that was like a club that you could go into and share ideas and do other things. And there were.
[00:25:03] Speaker C: You're the only one who has it. There's no digital copy of it, so.
[00:25:08] Speaker B: I can't take like a PDF.
[00:25:09] Speaker C: Well, that's the thing. I can take a screen grab of it. That's the part I never really understood. I remember Justin Bieber bought a board ape for $1.3 million. What it is now worth $59,000. There's a lot of risk involved in these things, but they got into taxing these swamps very quickly, which is.
[00:25:31] Speaker A: Wow, crazy. Well, and the big thing is on that. So think about with Biebs. So let's talk about from federal income tax standpoint. So he took a massive loss on that right now. If he hasn't sold it, he's not realizing that loss. How is he going to realize that loss if nobody's ever going to buy in?
But another thing is, too, is, okay, well, think about again that value of that token at that given point. Well, if you're exchanging the purchase at 1.3 million that he paid, what state did he buy that in? And does that state tax digital goods, namely artwork? And if they do tax digital artwork and digital goods, he would owe sales tax on that 1.3 million and the state would actually get to pay it. But here we go again. Okay, so you're talking about the exchange of a digital product. And there is no sourcing we can't identify. We know who bought it, but we don't know if he bought it while he was on a plane between France and the UK or the UK. And the.
And how would you determine delivery and where that good's ultimately being housed? There are so many interesting questions around this that we've just never looked at from a sales tax perspective.
[00:26:46] Speaker B: You'd almost have to use, like, the Goldberg two out of three rule, which is for, I mean, the primary address of the buyer.
[00:26:56] Speaker A: That's exactly right.
[00:26:57] Speaker B: That's how you source it.
[00:26:58] Speaker A: There you go.
In this case, it could be his credit card address, it could be his bank address or his primary residence that he lists on his income tax return. Who knows? But it's something that we just haven't had to tackle yet. And certain states are trying to look at and they're trying to figure all this out.
I've heard that they've talked about a national cryptocurrency, right? A national virtual currency.
[00:27:23] Speaker B: Is that what El Salvador is doing?
[00:27:25] Speaker A: Or it's just, well, they've adopted bitcoin as basically they just bought a bunch and said, hey, this is now our national currency, okay?
[00:27:34] Speaker C: Like 2500 bitcoin. And if it goes crazy, they're like, cool. Now we're the US.
[00:27:39] Speaker A: That's exactly right.
[00:27:41] Speaker C: We're the captain now.
[00:27:46] Speaker A: But in honesty, if we set up our own virtual currency, obviously it's the United States. It's going to be pegged to the US dollar, right. And its value is going to be pegged to the dollar. So it's going to be quite interesting to see what would happen. But I know that the Treasury Department really wants to regulate this stuff. They got to figure out some way to get their arms around it.
[00:28:04] Speaker B: Okay.
[00:28:05] Speaker A: It is the complete wild west right now.
[00:28:07] Speaker B: No rules like Wyatt Earp's going to have to come in and figure this.
[00:28:10] Speaker A: In all honesty, that I think is the best analogy is that we are looking for a Wyatt Earp of the crypto world, and we do not have one. All we have right now is a bunch of Billy the kids and other folks running around.
[00:28:22] Speaker B: I nominate JB for Wyatt Earp.
[00:28:24] Speaker C: I can do it.
[00:28:25] Speaker B: Yeah.
[00:28:26] Speaker A: So basically summarize, we are not advocating or voting against buying crypto, trading in crypto, doing anything with virtual currencies. We're not telling you that your business should transact in crypto or shouldn't transact in cryptocurrency. But if you are strongly suggest that we need to have a conversation.
[00:28:46] Speaker B: It's just a hot issue right now, and we have to address it from a sales tax perspective.
[00:28:50] Speaker A: Right. And also income tax perspective. And we have people on the income tax side that can assist you with that as well.
[00:28:55] Speaker B: Absolutely.
[00:28:56] Speaker A: Yep.
[00:28:57] Speaker C: Okay, Jenny, take us home.
I don't think we offended anybody.
[00:29:01] Speaker A: I don't think we did.
[00:29:02] Speaker C: Well, we called the episode crypto nerds, so I guess we can just apologize to crypto nerds in general.
[00:29:08] Speaker A: But did Elon say something about dogecoin, or did he change doge to shibu inu?
[00:29:13] Speaker C: I think he just said something about it, but there's a lot of coins out there that are crazy.
[00:29:18] Speaker A: Okay. I just want to make sure that I didn't say a misnomer earlier today.
[00:29:21] Speaker C: Don't think so.
[00:29:22] Speaker A: Okay.
[00:29:22] Speaker B: Do we have to apologize to SBF or no?
[00:29:24] Speaker A: Yeah, we probably. No, I'm not apologizing to that aspect.
[00:29:28] Speaker B: I don't know. All right, obviously, I need to learn more about this.
[00:29:30] Speaker C: Absolutely not.
[00:29:31] Speaker B: Okay. He's an ass bag. All right. Got it. All right, well, on that note, since we didn't offend too many people for once, which is kind of weird. Yeah. Thank you so much for listening. And if you have any questions or issues you want us to tackle, will you email us? You can email us at
[email protected] and we'd love to take your questions or your haikus or your complaints directed at Tim, which would be fine.
[00:29:53] Speaker A: There you go.
[00:29:53] Speaker B: And you can listen to any of our other episodes, and you don't have to listen to them in order. You can hit us up on Apple, Spotify and Stitcher. You can also watch us on YouTube. YouTube. Thanks for joining us today. See you next time.
