Were a bitcoin-teller operator's cryptocurrency sales and related transaction fees subject to Tennessee business tax?

Plain-English summary

Tennessee found neither the cryptocurrency sales nor the related transaction fees subject to business tax.

The taxpayer operated cryptocurrency automated teller machines and acquired digital assets for resale to customers. Tennessee treated Bitcoin and other virtual currencies as intangible personal property, so receipts from buying and selling them fell outside business tax under Rule 1320-04-05-.02(3).

The taxpayer also charged transaction fees. Tennessee found those receipts came from services allied with exchanging securities and commodities, an exception to Classification 3 business tax. Because both answers were no, the Department did not decide the alternative question about excluding cryptocurrency acquisition costs from taxable receipts.

What this means for you

This advisory ruling distinguishes cryptocurrency sales from taxable sales of tangible property and treats the operator's related exchange fees as excepted services. A different fee structure or activity could produce a different result.

Common questions

Q: Were receipts from selling Bitcoin and other cryptocurrencies taxable? A: No. Tennessee classified the assets as intangible personal property.

Q: Were the transaction fees taxable?
A: No. Tennessee treated them as receipts from excepted currency-exchange services.

Q: Did Tennessee decide whether cryptocurrency costs could be excluded from the tax base? A: No. It pretermitted that question because it found the receipts were not taxable.

Citations and references

• Tenn. Code Ann. §§ 67-4-702, 67-4-704, 67-4-708, 67-4-709, and 67-4-717
• Tenn. Comp. R. & Regs. 1320-04-05-.02(3)

Source

• Landing page: https://www.tn.gov/revenue/tax-resources/legal-resources/tax-rulings.html
• Original PDF: https://www.tn.gov/content/dam/tn/revenue/documents/rulings/business/25-10bus.pdf

Original ruling text

TENNESSEE DEPARTMENT OF REVENUE
REVENUE RULING # 25-10
Revenue rulings are not binding on the Department. This ruling is based on the particular facts and circumstances presented, and is an interpretation of the law at a specific point in time. The law may have changed since this ruling was issued, possibly rendering it obsolete. The presentation of this ruling in a redacted form is provided solely for informational purposes, and is not intended as a statement of Departmental policy. Taxpayers should consult with a tax professional before relying on any aspect of this ruling. SUBJECT Applicability of Tennessee business tax to Bitcoin teller machines. SCOPE Revenue Rulings are statements regarding the substantive application of law and statements of procedure that affect the rights and duties of taxpayers and other members of the public. Revenue Rulings are advisory in nature and are not binding on the Department. FACTS The Taxpayer is an operator of cryptocurrency Automated Teller Machines (“ATMs”), also known as Bitcoin Teller Machines (“BTMs”). It currently operates over 7,000 BTMs across the United States and Canada. The Taxpayer facilitates cryptocurrency transactions by providing people with more ways to buy, sell, send, and receive cryptocurrency – in person with BTMs, through the use of a mobile app, or at a check-out register of a participating store. Similar to ATMs, customers can deposit their cash at a BTM. Instead of dealing only with fiat currencies, these machines enable users to exchange cash for digital currencies or vice versa. As shown in Exhibit A, BTMs look identical to typical ATMs. Similar to ATMs, BTMs are positioned at various locations, including gas stations, convenience stores, grocery stores, laundromats, etc. The locations are operated by other business owners that allow the Taxpayer to install BTMs in the same manner as ATM operators. Similar to ATMs, the BTMs operate without assistance from employees based on the software that is installed in each unit. The cash from the BTMs is periodically collected through third-party cash transportation companies. The cash is then deposited in the Taxpayer’s operating account with a financial institution. In addition to performing transactions at the BTMs, customers can transact at register locations of participating vendors by adding cash to their cryptocurrency wallets. Once the cash is added to a customer’s cryptocurrency wallet, it will automatically be converted to cryptocurrency within two hours, or the customer can choose to convert the currency instantly. The Taxpayer’s business model is to acquire cryptocurrency and resell it to customers in exchange for cash. Accordingly, the Taxpayer earns revenue from the sale of cryptocurrency that is purchased by a customer. When the Taxpayer acquires the cryptocurrency, it only holds the cryptocurrency for an average of four hours before it is then sold to the customer. In addition, the Taxpayer earns revenue from a transaction fee ranging from $1.00 to $3.00, which is similar to an ATM transaction fee.

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Business owners receive a monthly or per transaction fee in exchange for housing the Taxpayer’s BTMs. The Taxpayer describes its process of selling digital assets as follows: Step 1: The Taxpayer’s customer initiates digital asset buy process at a BTM location for cash in any amount or at a third-party retailer checkout location. During this time, the BTM accesses the customer’s digital asset hot wallet and sends the required digital asset to the address provided by the customer. Step 2: The Taxpayer periodically collects cash from the BTM and separately purchases digital assets from a liquidity provider. The cash from the BTMs is collected through third-party cash transportation companies. The cash is then deposited in the Taxpayer’s operating account with a financial institution. Step 3: The Taxpayer then replenishes the balances of its hot wallets with the digital assets, which will be used by the BTMs for other customer purchases (back to Step 1). The Taxpayer’s proceeds from the sale of the cryptocurrency to the customer is a fee based on 20%31% of the total value of the cryptocurrency sold. RULINGS 1) Are the Taxpayer’s receipts from the sale of Bitcoin and other cryptocurrencies subject to Tennessee’s business tax? Ruling: No. The Taxpayer is selling and buying intangible personal property that is not subject to business tax. 2) Are the Taxpayer’s receipts from transaction fees subject to Tennessee’s business tax? Ruling: No. The transaction fees are receipts from currency exchange services that are excepted from the business tax. 3) If the Taxpayer’s receipts are subject to the business tax, can the Taxpayer exclude the passthrough costs of cryptocurrency purchased and sold to customers from its taxable gross receipts base? Ruling: This question is pretermitted by the response to the questions above. ANALYSIS Tennessee’s business tax is a privilege tax on the privilege of doing business by making sales of tangible personal property and services within Tennessee and its local jurisdictions. 1 A person without a physical location or place of business in Tennessee is subject to the state-level business tax if the person (i) has a substantial nexus in the State and (ii) engages in this State in any vocation, occupation,

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TENN. CODE ANN. § 67-4-704.

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business, or business activity set forth as taxable under TENN. CODE ANN. § 67-4-708. 2 The business tax applies to a taxpayer’s gross sales if the taxpayer falls within certain classifications. 3 Those classifications also determine the rate of the business tax. 4 A taxpayer’s classification is determined by its dominant business activity. 5 “Dominant business activity” means “the business activity that is the major and principal source of taxable gross sales of the business.” 6 The Taxpayer describes three types of receipts that it receives: (1) receipts from the sale of Bitcoin and other cryptocurrencies, (2) receipts from transaction fees of 20% to 31% on the sale of Bitcoin and other cryptocurrencies, and (3) receipts from BTM transaction fees of one to three percent. Bitcoin is a peer-to-peer network that allows online payments to be sent directly from one party to another without using an intermediary, such as a financial institution. 7 A coin (or fraction thereof) is a “chain of digital signatures.” 8 “Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin.” 9 Cryptocurrency is a term for virtual currency, which the Tennessee Department of Financial Institutions has described as follows: Virtual currency is an electronic medium of exchange that does not have all the attributes of real currencies. Virtual currencies include cryptocurrencies, such as bitcoin and Litecoin, which are not legal tender and are not issued or backed by any central bank or governmental authority. Virtual currencies have legitimate purposes and can be purchased, sold, and exchanged with other types of virtual currencies or real currencies like the U.S. dollar. This can happen through various mechanisms such as exchangers, administrators, or merchants that are willing to accept virtual currencies in lieu of real currency. 10 In 2014, the Internal Revenue Service issued a Notice entitled “IRS Virtual Currency Guidance.” 11 The IRS described Bitcoin as an example of “virtual currency.” For federal tax purposes, virtual currency is treated as property. “General tax principles applicable to property transactions apply to transactions using virtual currency.” 12 The Internal Revenue Service also states that Bitcoin and other convertible virtual currencies, stablecoins, and non-fungible tokens, are digital assets, defined as “any digital representation of value recorded on a cryptographically secured, distributed ledger (blockchain) or

2

TENN. CODE ANN. § 67-4-717(a)(1).

3

TENN. CODE ANN. § 67-4-708.

4

TENN. CODE ANN. § 67-4-709.

5

TENN. CODE ANN. § 67-4-708.

6

TENN. CODE ANN. § 67-4-702(a)(5).

7

Bitcoin: A Peer-to-Peer Electronic Cash System, Satoshi Nakamoto, https://bitcoin.org/bitcoin.pdf.

8

Id.

9

Id.

Re: Regulatory Treatment of Virtual Currencies Under the Tennessee Money Transmitter Act, 2015 WL 10385047, at *1, Tenn. Department of Financial Institutions (December 16, 2015 Memo).

10

11

IRS Notice 2014-21, 2014-16 I.R.B. 938 (Mar. 26, 2014).

12

Id.

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similar technology.” 13 “For U.S. tax purposes, digital assets are considered property, not currency.” 14 Therefore, digital assets or virtual currencies that meet this definition are a type of property. Tennessee’s business tax applies to sales of tangible personal property and services. For business tax purposes, “tangible personal property” is defined to include “personal property that may be seen, weighed, measured, felt or touched, or is in any other manner perceptible to the senses.” 15 Tangible personal property “does not include stocks, bonds, notes, insurance or other obligations or securities[.]” 16 Intangible property is not defined by the Tennessee Code for business tax purposes but has been described by the Tennessee Supreme Court in another context as “such property as has no intrinsic and marketable value, but is merely representative or evidence of value, such as certificates of stock, bonds, promissory notes, copyrights, and franchises.” 17 According to TENN. COMP. R. & REGS. 1320-04-05-.02(3), “A person who, as a part of his normal business activities, buys and sells intangible personal property or real property is not liable for the business tax on receipts from such sales.” For federal tax purposes, the I.R.S. considers virtual currency to be property, not currency. 18 However, virtual currencies or digital assets are property that cannot be seen, weighed, measured, felt, touched, or otherwise perceived by the senses. The federal tax definition of a digital asset is any digital representation of value recorded on a cryptographically secured, distributed ledger (blockchain) or similar technology. 19 Accordingly, virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. 20 Since the virtual currency is property and also a digital representation of value, it is akin to stocks, bonds, notes, insurance or other obligations or securities which are a mere representation or evidence of value, specifically excluded form business tax. Thus, virtual currency or digital assets are considered intangible property the sale of which is not subject to business tax. 21 Because the sale of intangible personal property is not a vocation, occupation, business, or business activity described in TENN. CODE ANN. § 67-4-708, and the sale of intangible personal property is specifically excluded from the business tax per TENN. COMP. R.
& REGS. 1320-04-05-.02(3), the Tennessee business tax does not apply to the Taxpayer’s sale of such virtual currencies or digital assets. 22

13
IRS, Digital Assets, at https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies (Last visited December 15, 2025). 14

Id.

15

TENN. CODE ANN. § 67-4-702(a)(23).

16

Id.

17

State v. Sanders, 923 S.W.2d 540, 542 (Tenn. 1996) (quoting Black’s Law Dictionary 809 (6th ed. 1990)).

18
IRS, Digital Assets, at https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies (Last visited December 15, 2025). 19

Id.

20

Id.

Business Tax Manual, Tenn. Dept. of Revenue (Jun. 2025), pp. 40-41, 125; SUT-122 - Virtual Currency, Tenn. Dept. of Revenue (Mar. 27, 2025), https://revenue.support.tn.gov/hc/en-us/articles/360058236912-SUT-122-Virtual-Currency ; BUS-34 – Sales of Intangible Personal Property, Tenn. Dept. of Revenue (Mar. 5, 2021), https://revenue.support.tn.gov/hc/enus/articles/360057136892-BUS-34-Sales-of-Intangible-Personal-Property. 21

22

Sales of taxable goods or services that are purchased with virtual currency are subject to the Business Tax. SUT-122, supra.

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If the Taxpayer only sold Bitcoin and other cryptocurrencies for market value, this would end the inquiry because sales of intangibles are not subject to the business tax under TENN. COMP. R. & REGS. 1320-04-05-.02(3). But the Taxpayer also receives transaction fees of up to 31% for selling cryptocurrency and up to three percent for providing BTMs for its customers to use. Accordingly, the Taxpayer sells cryptocurrency and also has receipts attributable to these related services provided to its customers. When a taxpayer sells services, it is “making sales of services or engaging in the business of furnishing or rendering services,” which falls under Classification 3 and is subject to business tax at the rate for that classification, unless an exception applies. 23 One of the exceptions to Classification 3 is “services furnished by exchanges, exchange clearing houses and other services allied with the exchange of securities and commodities.” 24 The Taxpayer provides services that facilitate the exchange of Bitcoin and other cryptocurrencies. The Commodity Futures Trading Commission defines Bitcoin and other cryptocurrencies as commodities. 25 The Taxpayer thus falls within an exception to Classification 3 such that receipts from its commodities exchange services are not subject to business tax.

23

TENN. CODE ANN. § 67-4-708(3)(C).

24

TENN. CODE ANN. § 67-4-708(3)(C)(x).

APPROVED:

David Gerregano
Commissioner of Revenue

DATE:

December 16, 2025

25
See, In the Matter of: Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, CFTC Docket No. 15-29, available at http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf.

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