By Landon Manning
In a new first for bitcoin adoption by governments, Colorado has officially become the first U.S. state to allow citizens to pay taxes in bitcoin (BTC).
This policy took effect on September 1, 2022, claiming that moving forward, all state taxpayers will be allowed to use cryptocurrency to pay a wide variety of different types of taxes, specifically including “individual income tax, business income tax, sales and use tax, withholding tax, severance tax and excise fuel tax.” The notice also states that, although cryptocurrencies will be legal tender for the payment of these taxes, the state will only issue refunds in U.S. dollars.
In a somewhat odd move, the Colorado Department of Revenue announced these changes in late September, several weeks after the payment protocols had been updated. This move is a first in terms of bitcoin acceptance within the United States, in an environment where both local and federal legislatures have been gradually more willing to accept the radical economic possibilities of the cryptocurrency. This is not the first time that a U.S. state has released a pilot program for bitcoin tax payments, but it is certainly more far-reaching.
Ohio made a tentative step toward bitcoin payments in 2018, giving the green light for certain taxes to be paid with bitcoin. However, in addition to being bitcoin-specific, this initiative was drastically different from Colorado’s new program in one key way: This payment method was only available to businesses. Hopefully building from the mistakes of Ohio’s early plan, Colorado allows both business and private taxes to be paid with bitcoin and other types of cryptocurrency. Within a few months of Ohio’s experiment, adoption levels were abysmal, and the system was decommissioned before it reached one year of use. And even this experiment got farther than previous attempts, which never made it through committee!
This new program run by the state of Colorado is able to take advantage of a much more streamlined and integrated world of bitcoin adoption than was available some four years ago. Ohio’s experiment involved a specific website and wallet integration made in-house, which likely involved opportunity costs, while the Colorado Department of Revenue has been able to run its services through PayPal. In other words, if a Colorado resident has all their bitcoin in some sort of private custody, they will need to transfer these assets to a PayPal wallet, where they will then pay the state, plus a fee of 1.83% and $1. The state will accept payments in any of the four cryptocurrencies that PayPal allows trades, although the payment will only be accepted if it consists entirely of one currency.
It is not only the private acceptance of bitcoin that has helped this policy along, but also its political gains. The first move in Ohio was taken entirely at the behest of the then state treasurer, however this figure subsequently failed to win either re-election or any other seats. Colorado’s initiative, however, was promised by its governor, Jared Polis. In addition to being a popular figure, a previous Congressman and the first openly gay U.S. governor, Polis is also a founding member of the Congressional Blockchain Commission, which has grown in size and influence over the past several years. These changes represent a further entrenching of Bitcoin-friendly politics, as a growing number of elected officials at the highest levels of government changes the entire paradigm moving forward. Although it can be very easy for one state treasurer to shut down a website made by his predecessor, it’s quite another thing to cancel substantial business deals made from the state’s executive.
In other words, Colorado’s new tax payment plan is a groundbreaking new step for the world of bitcoin and cryptocurrency. It has all the advantages of a new world of success that bitcoin has been enjoying, and is by all accounts posed to show how normal usage can be for the lives of ordinary people. Comparing this new initiative to previous attempts, we can see just how far the world of Bitcoin has come in a few short years. And as we look to the future, there’s no reason to believe that it won’t go even further.
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