Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Crypto Crash Halts Plans by Statehouses to Accept Bitcoin Tax Payments

Cryptocurrency Jul 05, 2022 16:06
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters

(Bloomberg Law) -- Two US states are steaming ahead with programs that will permit taxes to be paid in cryptocurrency, but the idea has been shelved almost everywhere else in the wake of the crash that has erased hundreds of billions of dollars worth of digital assets.

Revenue departments in Colorado and Utah are implementing programs to enable businesses and individuals to pay their tax bills with virtual currencies such as Bitcoin, Ethereum, and Dogecoin, targeting implementation within a few months. The two Western states look to be outliers, however, and still face some logistical hurdles before their programs launch.

The sector’s selloff has taken the value of the global cryptocurrency market below $1 trillion from a $3 trillion peak last November. Bitcoin alone has plummeted more than 70% since Nov. 9.

While a half-dozen states have considered following the lead of Colorado and Utah, a chorus of fiscal watchdogs, academics and crypto skeptics is now warning lawmakers against initiatives that might put state treasuries and taxpayers at risk.

“Anything involving crypto is less appealing in the wake of the massive volatility we’ve seen over the last month, and frankly the last six months,” said Lee Reiners, executive director of Duke University’s Global Financial Markets Center. “I don’t know if that slows momentum at the state level for payment of taxes, but it doesn’t help. And there is no financial benefit to the states to permit it.”

SIGN UP for The Exchange, our free weekly tax newsletter

Betty Yee, California’s state controller, called a crypto-payment bill (S.B. 1275) currently before the California Legislature “fiscally irresponsible,” pointing to price volatility for cryptocurrencies and lack of a robust federal regulatory framework for digital assets.

“It’s still too new for government agencies to wade into cryptocurrency,” she told Bloomberg Tax.

New and Mysterious

The rationale for tax payments in cryptocurrency has always been thin.

Digital currencies are relatively new, highly volatile, and remain a mystery to most consumers, Reiners said. It’s unclear if Bitcoin or Ether will ever be viewed as viable mediums of exchange, whether for buying pizza or paying property taxes. Moreover, Reiners said, states don’t accept shares of stock, futures contracts, or foreign currencies for the payment of taxes, so why should they accept Bitcoin or Ether?

Still, parades of cryptocurrency investors and lobbyists have descended on state capitols with a mission. Their campaigns have led lawmakers to debate—and, in many cases, to enact—bills to bring cryptocurrencies into their states’ commercial codes and supercharge investments in blockchain businesses. Advocates are also pushing states to permit payments of taxes and services in digital currency, hoping such programs would accelerate crypto’s profile as a medium of exchange.

“A lot of states want to signal they’re friendly to the industry,” said Samuel Armes, president of the Florida Blockchain Business Association. “They want the business, and they want the innovation. So, they will push policies to attract this new wave of tech and talent.”

Thirty-seven states considered bills affecting some aspect of cryptocurrency during the 2022 legislative session, according to Heather Morton, a policy analyst at the National Conference of State Legislatures. Within that group, she said Arizona, California, Hawaii, Illinois, Louisiana, New York and Oklahoma all considered bills that would authorize the authorities to accept crypto.

Utah and Colorado

Utah was the only state to take final action, enacting H.B. 456, which directs the state and local units of government to accept crypto for the payment of taxes beginning Jan. 1, 2023. The law directs the Division of Finance to contract with a third party—a cryptocurrency payment gateway—to quickly convert cryptocurrency into US dollars before remitting the funds to the state.

Payment gateways serve as an interface between the crypto world and the traditional financial sector. They provide a critical service by locking in a precise dollar value for a coin at the moment of transaction; otherwise, the revenue authority could be out of pocket in the blink of an eye.

Colorado chose a slightly different path than Utah’s, though it aimed at the same goal. In February, Gov. Jared Polis (D), a strong advocate for the cryptocurrency industry, directed the Department of Revenue to develop a program for tax remittances in crypto.

WATCH: Tax Your Crypto and NFTs? Yes, the IRS Wants Its Cut

Meghan Tanis, a spokesperson for the department, said the state is still working through some details, but taxpayers will be able to use a special crypto payment portal beginning in September. Like Utah, Colorado plans to use a third party to immediately convert cryptocurrency payments into US dollars.

“We are working to make it similar to how we accept credit cards and other forms of payment,” Tanis said. “The state does not intend to hold a balance of cryptocurrency.”

The industry has a like-minded friend in Florida Gov. Ron DeSantis (R), who slipped several crypto-friendly features into his “Freedom First Budget proposal.” The budget included a plan allowing corporations to pay state fees via cryptocurrency directly to the Department of State.

“The Legislature did not act on this idea during the legislative session that concluded in March, but it could happen next session,” the governor’s press secretary, Christina Pushaw, said.

Diminishing Enthusiasm

With “Crypto Winter” setting in, however, momentum has been ebbing. The market crash also raises some practical questions about the feasibility of the Colorado and Utah approaches.

Utah’s program prohibits it from risking state money during the conversion of cryptocurrency into US dollars. Finding a vendor to absorb the risk could prove challenging, said John Valentine, chairman of the Utah State Tax Commission.

“I don’t know what they’re going to find when they go out to the marketplace,” Valentine said. “Markets have to be very effective at scoring their risk. With the uncertainty in the cryptocurrency markets right now, I think it’s going to be harder to find a third-party vendor than when it was more stable a year ago.”

Payment service providers that specialize in cryptocurrencies insist they can fulfill these duties at minimal risk to the states.

“At the end of the day, you want to provide your residents with as many payment options as possible,” said Merrick Theobald, vice president of marketing for Atlanta-based BitPay. “And there is no better way to transact online than with cryptocurrency. It’s a great digital payment method.”

Solves No Problems

Tax law scholars predicted that few states would follow Colorado and Utah. Offering cryptocurrency tax payment programs doesn’t solve any inherent problems for taxpayers or state revenue departments, and likely creates new ones, said Omri Marian, a professor of tax law at the University of California-Irvine School of Law.

Marian said the payment of taxes from a digital currency wallet would qualify as a tax realization event triggering either a capital gain or loss at both the state and federal levels. Accounting for these events “creates a new compliance burden for taxpayers and a new administration and enforcement headache for tax authorities,” he said.

He also dismissed programs that require third-party conversion and clearing, arguing that those processes would leave revenue agencies with new layers of complexity and expense to do something that is simple, efficient, and inexpensive when transacted in US dollars.

Given the tax policy issues at play, Marian said, Colorado- and Utah-style programs would only be enacted in jurisdictions governed by lawmakers living under the spell of crypto evangelists.

“States have absolutely nothing to gain from this,” he said. “It is a rather pathetic attempt to look cool with crypto bros. As far as tax policy is concerned, it is just stupid.”

Crypto Crash Halts Plans by Statehouses to Accept Bitcoin Tax Payments

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Federico Mason
Federico Mason Jul 19, 2022 18:10
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I strongly recommend anyone who needs a legit and profitable platform to invest his money and get paid without stress shoud kindly reach out Maryam she’s good on this. Face 📨book: 👉Maryam Harrison Jason WhatsAp: +1914 - 339 - 5413⬅️
Nelson Christopherson
Nelson Christopherson Jul 08, 2022 2:13
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This is the perfect time to invest in cryptocurrency now that bitcoin is on the falling side, from analysis bitcoin will soon rise to the highest side very soon.It’s good to save money but wise to invest cause your money works for you.I will recommend my current trader Mrs Annabella Ryan, her strategies are earning alot of profits for me. I have earned over $150,000 investing with her.She gives her clients access to her trading site whereby they can monitor their trades on daily basis. Reach her on Instagram👉💓✅✅✅@annabellaryan_official_tradet
George Raymond
George Raymond Jul 05, 2022 17:05
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Never seen a trading marketer as Mrs Stephanie. Her trading platform are strictly impeccable! With regards to professionalism in crypto /forex trade investments, i recommend you to her. begin your trade @ her Face📚 book page ➡️ Stephanie. J. Mason.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email