Cryptocurrencies and other digital assets have moved from a niche interest to a mainstream class of holdings over the past decade. Bitcoin, Ether, stablecoins, and a wide range of tokens and non-fungible tokens (NFTs) are now bought, sold, and exchanged by millions of taxpayers across custodial exchanges, payment processors, and hosted wallets. For federal tax purposes, IRS treats digital assets as property, meaning that sales and exchanges can generate taxable gains and losses much like stocks or other investments. 

For years, however, taxpayers largely self-reported this activity, with limited third-party information available to tax authorities. To close that gap, Treasury and IRS extended the information-reporting regime to digital assets and created Form 1099-DA, Digital Asset Proceeds From Broker Transactions. Beginning with transactions on or after January 1, 2025, brokers must report customers’ digital asset proceeds to IRS on this new return. Much of the guidance on Form 1099-DA has understandably focused on the federal mechanics. Less attention has been paid to the state and local dimension, where the requirements are less uniform and warrant early planning. 

Combined Federal/State Filing Program 

For many information returns, brokers rely on the Combined Federal/State Filing (CF/SF) Program through its Filing Information Returns Electronically (FIRE) system, under which IRS forwards data to participating states after a single federal filing. IRS excluded Form 1099-DA from the CF/SF Program for tax year 2025, and its inclusion for 2026 has not been confirmed. As a result, these returns are not transmitted to the states through the program, and any applicable state reporting obligations remain the filer’s responsibility. Filers who assume the data will be forwarded automatically may overlook a separate state requirement. 

Filing Obligations 

State reporting obligations generally fall on the same parties subject to federal reporting: digital asset trading platforms, brokers, payment processors, hosted wallet providers, and kiosks. A broker with customers in multiple states may have a filing obligation in each, and those obligations are not uniform. Where Form 1099-DA is not transmitted through the CF/SF Program, a state may require the filer to submit the form directly. Other states may require submission only when gross proceeds exceed a threshold or when state tax has been withheld. 

Filing Methods 

Where a state requires reporting, the obligation is generally satisfied on that state’s own terms. Some states require direct submission through their online systems, while others accept electronic media or alternative electronic channels. Requirements vary by state with respect to submission portal, file format, thresholds, deadlines, and software approved for bulk filing. Submitting in a format or through a method that a state does not accept may itself give rise to penalties, even where the filer attempted in good faith to comply. 

Penalties 

State penalties for failing to file information returns vary by jurisdiction, but they can accumulate quickly with the number of returns at issue. A penalty of $50 per return may appear immaterial in isolation. However, for a large platform with millions of users that same penalty can translate into hundreds of thousands of dollars of exposure in a single state. Form 1099-DA volumes are driven by individual digital asset dispositions rather than by the number of customers, so even a relatively small population of active users can generate a disproportionately large number of returns and a correspondingly large penalty base. 

Being Proactive 

Digital asset activity has grown substantially over the past decade, and federal reporting requirements continue to develop. State-level requirements, by contrast, remain comparatively unsettled. Many states have not yet published guidance addressing whether, or how, Form 1099-DA must be filed, leaving filers to navigate inconsistent and incomplete rules. The combination of high return volumes and unclear obligations creates meaningful penalty exposure that is easier to address before a filing deadline than after an assessment. 

Managing that exposure calls for expertise in state and local tax matters and specific research confirming where a filing duty exists, tracking each state’s format and deadline, and revisiting those conclusions as guidance is issued. Filers with significant volume or limited in-house state and local tax capacity may find it worthwhile to consult a specialist who can help interpret unsettled guidance and reconcile differing state requirements.  

The Takeaway 

Form 1099-DA creates a separate state compliance requirement for many digital asset brokers and platforms, not merely a federal reporting obligation. State filing rules are likely to vary by jurisdiction. Those differences matter because an incorrect submission method can still trigger penalties, and the risk may be magnified by the high volume of reportable digital asset transactions. Brokers, exchanges, payment processors, hosted wallet providers, kiosks, and other potentially covered filers should begin identifying states where they have customer or transaction exposure. This includes tracking each state’s Form 1099-DA guidance as it develops, confirming acceptable filing methods and deadlines, estimating return volume by state, and involving state and local tax advisors where filings are expected to be material or guidance remains unclear.