Sales Tax on Hashrate / Timeshare Selling

[betajuice]

I would like to offer the ability for customers to purchase hashrate or a block of hashes and I'm wondering if there is a way to offer this WITHOUT incurring sales tax... is this possible?

[1714867863]

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[1714867863]

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[1714867863]

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[1714867863]

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[Coinfarm ventures]

I don't think services are taxable in most U.S. states. You're probably providing a service, not a good. If not, then try structuring your business so it's obviously a service.

Think of it like a cloud hosting provider. I've never paid sales tax on VPS hosting even from providers based in the U.S., even though both parties live in states with a sales tax.

Worst case, tell your customers to provide reseller certificates so that they pay the tax 12-15 months later instead of today. Hopefully they'll make a return on the extra 5-10% of hashrate they can buy, you get 5-10% more revenue, and the sales tax owed is diluted 10% by inflation.

Personally my business model will not be to sell hashrate or mining contracts. I would set up a new corporation for the customer so the full tax benefits of depreciation pass through to them. The customer would be a non-voting 100% owner of that corp. My parent company would charge the mini-corp a fixed $/kWh rent rate or something + a setup fee. Whatever profit is left is paid out to them as a distribution every month or so. Still need to talk to a lawyer to make sure this is a sound idea.

This also gives them a powerful incentive to re-invest that distribution into more shares (a.k.a. more equipment), in order to keep Uncle Sam away and not pay 22%-37% the next year. If they want to quit and liquidate, they owe 22-37% from depreciation recapture. That's one way to retain customers without forcing them into 12+ month contracts.

[betajuice]

I don't think services are taxable in most U.S. states. You're probably providing a service, not a good. If not, then try structuring your business so it's obviously a service.

Think of it like a cloud hosting provider. I've never paid sales tax on VPS hosting even from providers based in the U.S., even though both parties live in states with a sales tax.

https://www.linkedin.com/pulse/texas-saas-cloud-computing-taxable-josh-alballero/

Personally my business model will not be to sell hashrate or mining contracts. I would set up a new corporation for the customer so the full tax benefits of depreciation pass through to them. The customer would be a non-voting 100% owner of that corp. My parent company would charge the mini-corp a fixed $/kWh rent rate or something + a setup fee. Whatever profit is left is paid out to them as a distribution every month or so. Still need to talk to a lawyer to make sure this is a sound idea.

So is this sub-corporation issuing securities?

[Coinfarm ventures]

https://www.linkedin.com/pulse/texas-saas-cloud-computing-taxable-josh-alballero/

Oh, I didn't know Texas is one of the states that taxes cloud hosting.

But I don't think this applies to your situation, since the guidance states that "Settling of electronic payment transactions by certain entities" are not taxable. I couldn't find anything specifically declaring that crypto mining services are taxable, so you could default to not levying tax as long as your accountant agrees.

There's probably a way you could make it work, such as taking wallet addresses from customers and having the pool mine directly to their wallet.

So is this sub-corporation issuing securities?

I don't think so, since it would be an S-corporation or LLC with just one shareholder, and the shares are not being publicly sold. The sub-corp wouldn't even have to issue more shares for more investment. The customer could simply write a check to the sub-corp, which I'll then use to buy more equipment. No stock or securities transactions involved here since they already own 100%.

But like I said, I'll talk to an attorney. I don't care what the structure is, as long as the customer can take the depreciation (since I have no use for it) and the parent corp is the exclusive hosting provider.

[DaveF]

Oh, I didn't know Texas is one of the states that taxes cloud hosting.

Texas taxes everything.

But also keep in mind, if you sell to people in other states you may or may not have to collect sales tax for those states and pay them.

There are services that are out there that will do as little as sell you lists of locations and rates to others that will integrate with your billing & CRM software and add the appropriate tax to the invoices and then send it to the proper agencies at of the states. It just depends on how much you want to pay for what features.

-Dave

[Coinfarm ventures]

There are services that are out there that will do as little as sell you lists of locations and rates to others that will integrate with your billing & CRM software and add the appropriate tax to the invoices and then send it to the proper agencies at of the states. It just depends on how much you want to pay for what features.

It's usually worth paying for these accounting platforms, such as Bitwave. I would write a few lines of code to integrate Bitwave with the CRM/ticketing system, Minerstat, mining pool sites, the exchange, and the wallet API for payouts. Not to mention the ERCOT API with Hiveon / BraiinsOS / nvidia-smi for power management.

[DaveF]

There are services that are out there that will do as little as sell you lists of locations and rates to others that will integrate with your billing & CRM software and add the appropriate tax to the invoices and then send it to the proper agencies at of the states. It just depends on how much you want to pay for what features.

It's usually worth paying for these accounting platforms, such as Bitwave. I would write a few lines of code to integrate Bitwave with the CRM/ticketing system, Minerstat, mining pool sites, the exchange, and the wallet API for payouts. Not to mention the ERCOT API with Hiveon / BraiinsOS / nvidia-smi for power management.

If you sell to someone in many states you have to collect that state & county sales tax, based on their county and remit it to the state.

In a lot of locations SAAS is taxable. Hunt around pick an online storage service, not backup just storing data and start entering different locations and see how many charge sales tax.
I am not an accountant / tax person / tax lawyer, DYOR and do what you feel comfortable with.

-Dave