How does Kansas sales tax apply when a customer pays with bitcoin or other digital currency?

Plain-English summary

Kansas Notice 20-04 explains how the Retailers' Sales and Compensating Tax Acts apply to digital currency. For this notice, "digital currency" means an unregulated electronic representation of monetary value that functions as a medium of exchange but is not legal tender in any jurisdiction and exists only in electronic form -- including digital/electronic/virtual currency, cyber cash, bitcoin, ethereum, and cryptocurrencies, whether on a blockchain or not. It does not include retailer coupons or gift cards. The notice addresses three matters:

1. Digital currency exchange transaction fees are not taxable. Transaction fees for the exchange of digital currency are not a sale of tangible personal property or an enumerated taxable service, so they are not subject to Kansas sales tax.

2. Measuring gross receipts when a customer pays in digital currency. When a customer pays for taxable tangible personal property or an enumerated service entirely or in part with digital currency, the seller is a retailer obligated to collect and remit sales tax on the gross receipts received (K.S.A. 79-3602(o), 79-3602(ll)(1)). Using digital currency as payment does not change the taxability of progress, credit/layaway, or lease/license transactions. The tax is measured by the fair retail market value of the property or service, calculated using the list price in U.S. dollars -- not the value of the digital currency -- and includes all charges to the purchaser (such as storage and handling) not expressly excluded by statute. The tax rate and jurisdiction are set by destination-based sourcing under K.S.A. 79-3670. The notice gives rules for valuing property received in payment when it is transferred simultaneously versus successively, and for output/requirements contracts (fair retail market value at the date and place the property is delivered to the retailer; the contract date and the transferor's cost or book value are irrelevant). The measure of tax for use tax is the same as for sales tax.

3. The Department will not accept digital currency as payment. Because digital currency is not recognized as legal tender, the Department will not accept it as payment or remittance. Retailers may transact sales in digital currency, but when they remit sales tax under K.S.A. 79-3607 they must remit in U.S. dollars, converting any digital currency beforehand. The amount remitted is the tax calculated at the time of sale on the fair market value in U.S. dollars, without regard to any gain or loss on converting the digital currency to dollars.

What this means for you

Retailers who accept cryptocurrency

• If a customer pays in bitcoin or other digital currency for taxable goods or services, you must collect and remit Kansas sales tax based on the item's U.S.-dollar list price, not the currency's value.
• Remit the tax to the Department in U.S. dollars -- convert the digital currency first, and ignore any gain or loss on that conversion; use destination-based sourcing for the rate.

Digital currency exchanges

• Your transaction fees for exchanging digital currency are not subject to Kansas sales tax, because they are not a sale of tangible personal property or a taxable service.

Buyers paying with digital currency

• The tax you pay is based on the U.S.-dollar retail price of what you buy, including taxable charges like storage and handling -- paying in crypto does not reduce or change the tax.

Common questions

Are crypto exchange transaction fees taxable in Kansas? No -- they are not a sale of tangible personal property or an enumerated taxable service, so they are not subject to sales tax.

How is sales tax measured when a customer pays in digital currency? By the fair retail market value of the goods or service in U.S. dollars (the list price), not the value of the digital currency.

Can I pay my Kansas taxes in cryptocurrency? No -- the Department does not accept digital currency; you must remit tax in U.S. dollars, converting any digital currency first.

Does a gain or loss on converting crypto to dollars affect the tax remitted? No -- you remit the tax calculated at the time of sale on the U.S.-dollar fair market value, without regard to conversion gain or loss.

Which sourcing rules apply? Destination-based sourcing under K.S.A. 79-3670 determines the applicable rate and jurisdiction.

Citations and references

• K.S.A. 79-3602 -- defines "gross receipts," "sales or selling price," and "retailer" that measure the tax when payment is in digital currency.
• K.S.A. 79-3670 -- destination-based sourcing determines the applicable rate and jurisdiction.
• K.S.A. 79-3607 -- retailers remit sales tax to the Department (in U.S. dollars).
• K.A.R. 92-19-13a and 92-19-55b -- progress/credit/layaway and lease/license transaction rules, unaffected by payment in digital currency (see also Revenue Ruling 19-2010-05).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 20-04

Original ruling text

Policy & Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.org
Mark A. Burghart, Secretary Laura Kelly, Governor

                                        NOTICE 20-04

                 Sales Tax Requirements Concerning Digital Currency
                 Under the Retailers' Sales and Compensating Tax Acts
                                  (NOVEMBER 2, 2020)

As used in this notice, the term "digital currency" means:

1. An unregulated electronic representation of monetary value that functions as a medium of
   exchange, but which does not have status as legal tender in any jurisdiction; and,

2. That is only available and used in an electronic form and that is stored and transacted only
   through designated software, mobile or computer applications, or through dedicated digital
   wallets, and the transactions occur over the internet through secure, dedicated networks.

Digital currency includes subsets of the digital currency group, and includes, but is not limited to,
digital money, electronic money, electronic currency, cyber cash, virtual currency, bitcoin,
ethereum, and cryptocurrencies, whether they exist within the blockchain network or not.

Digital currency does not include retailer coupons or gift cards.

This notice will address three primary matters related to digital currencies and the Retailers' Sales
and Compensating Tax Acts.

1. Whether transaction fees for the exchange of digital currency is subject to Retailers' Sales
   Tax.

   Transaction fees for digital currency exchanges are not deemed a sale of tangible personal
   property or an enumerated taxable service under the Retailers' Sales Tax Act. As a result,
   transaction fees for a digital currency exchange will not be subject to Kansas sales tax.

2. The measure of gross receipts for sales of tangible personal property or enumerated taxable
   services when the consumer pays the retailer in digital currency.

   K.S.A. 79-3602(o) defines "gross receipts," in pertinent part as: the total selling price or the
   amount received as defined in this act, in money, credits, property or other consideration
   valued in money from sales at retail within this state; and embraced within the provisions of
   this act.

   K.S.A. 79-3602(ll)(1) defines "Sales or selling price" to mean, in pertinent part: the measure
   subject to sales tax and means the total amount of consideration, including cash, credit,

property and services, for which personal property or services are sold, leased or rented,
valued in money, whether received in money or otherwise, and includes all charges made to
the purchaser, such as shipping, handling and storage charges, not expressly excluded from
tax by statute. See K.S.A. 79-3602(i) and K.S.A. 79-3602(ll)(1)(D).

K.S.A. 79-3602(ii) defines "Retailer" to mean a seller regularly engaged in the business of
selling, leasing or renting tangible personal property at retail or furnishing electrical energy,
gas, water, services or entertainment, and selling only to the user or consumer and not for
resale.

K.S.A. 79-3670 provides the applicable tax rate and jurisdiction for tangible personal
property or service is determined using destination-based sourcing.

Thus, when a customer pays for their purchases of tangible personal property or an
enumerated service entirely or in part by digital currency, the seller is a retailer under the
Retailers' Sales Tax Act, and is obligated to collect and remit sales tax upon the gross receipts
received. The sourcing rules established under K.S.A. 79-3670 control. Moreover, the fact
that digital currency may be used as a form of payment does not affect the taxability of
progress payments, credit/layaway payments or lease or license transactions. See K.A.R. 92-
19-13a, K.A.R. 92-19-55b, and Revenue Ruling 19-2010-05.

When virtual currency is redeemed for a taxable product or enumerated service, the
transaction is completed and the retailer's sales or use tax liability accrues at that time.

With respect to each retail sale, sales tax is measured by the fair retail market value of the
property or service received in payment for the property or service sold, and will be
calculated using the list price in U.S. dollars of a good or service, not the value of the digital
currency. The measure of tax includes all charges made to the purchaser, such as storage
and handling charges, not expressly excluded from tax by statute.

When the property is transferred simultaneously, the property received must be valued in
money on the date and at the place the property is paid and delivered to the retailer. The date
of the contract is immaterial. Actual cost of the property to the transferor or book value of
the property for accounting purposes are irrelevant. The measure of tax for use tax purposes
is the same as for sales tax purposes.

When properties are transferred successively, each sale occurs when each property is
transferred. Where the obligations of the parties are specified in the contract, the measure of
tax for each sale is the fair retail market value of the property on the contract date. The fair
retail market value to be used must be the fair retail market value at the place where the
property received in payment is delivered to the retailer.

Where the obligations of the parties are not specified in the contract but rather are contingent
on future events i.e. an output or requirements contract, the measure of tax for each sale is
the fair retail market value of the property on the date of sale or on the date property received
in payment for the sale is delivered to the retailer, whichever occurs first. The fair retail

 market value to be used must be the fair retail market value at the place where the property
 received in payment is delivered to the retailer.

3. Whether the Department will accept digital currency as a form of payment or remittance.

   Because digital currency is not recognized as legal tender by any jurisdiction, the Department
   will not accept digital currency as a form of payment or remittance. As such, while retailers
   may transact their sales using digital currency, when they remit the sales taxes due to the
   Department pursuant to K.S.A. 79-3607, they must remit those taxes in U.S. dollars.
   Retailers should convert any digital currency into U.S. dollars prior to remittance to the
   Department. The amount of tax to be remitted to the Department is the amount calculated at
   the time of the sale on the fair market value of the property or service received in payment
   for the property or service sold in U.S. dollars without regard to any gain or loss on the
   conversion of the digital currency to U.S. dollars.

                                Taxpayer Assistance
   

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about this Notice, please contact:

                             Taxpayer Assistance Center
                            Kansas Department of Revenue
                              Topeka, KS 66612-1588
                                Phone: 785-368-8222
                                 Fax: 785-291-3614