The Sales Tax Problem

The IRS ruling is pretty bad for having to report capital gains, but the implications of the ruling on sales tax could be even worse. Consider the following scenario:

Alice uses USD to buy 1.0BTC from Bob. Bob adds 10% to the cost of the bitcoin in sales tax in accordance with his state/local tax regulations about selling property. Alice then immediately uses that bitcoin to buy a new TV from Carl. Because they are now bartering, the must BOTH report a sale and BOTH charge each other sales tax. Alice charges Carl 10% for the bitcoin he just acquired. And Carl charges Alice 10% sales tax for the TV she just acquired. Alice pays no capital gains tax because the relative value of bitcoin is the same as when she acquired it. We now have a 30% sales tax for this transaction!

Of course this scenario is dependent on the state choosing to apply sales tax to bitcoin.