In February, Governor Jared Polis took to the stage at ETHDenver, the longest running cryptocurrency conference in the world, with a big announcement: Colorado will soon be the first country to accept cryptocurrencies to pay state taxes and fees.
“We will not hold assets in that form, but we will have a layer that allows payment in that form and then conversion to the unit we use, which is the dollar,” Polis said at the time. And while it may have little impact on Coloradans who do their taxes in the first place, he stressed, the move is “symbolically important to show that we are a crypto-advanced country.”
On September 1 this year, the Colorado Department of Revenue began accepting cryptocurrency payments for taxes and fees.
“This includes individual income tax, business income tax, sales and use tax, withholding tax, severance tax and fuel excise tax,” said Daniel Carr, a spokesman for the Department of Revenue.
The move is part of a pitch by the State of Colorado, which hired a leading blockchain architect in 2019, to positioning itself as a hub for crypto and blockchain technology.
But since then until December 12, although Coloradans have made 1.37 million payments of state taxes in that time, only six payments have been made using cryptocurrency.
Part of the reason crypto tax payment programs have so far been unsuccessful may have to do with the fees paid to tax payers with crypto.
“There is an additional $1 plus 1.83 percent of the service fee payment amount when paying taxes through cryptocurrency,” said Carr, adding that “those who choose to pay with cryptocurrency through. Revenue Online will be directed to PayPal, where they will be able to choose the cryptocurrency they want to use for payment. A sufficient amount of digital currency to cover taxes and duties and fees is converted into dollars and sent to the Department of Revenue to complete the online transaction. Effective on the start date, USD will be transferred in three to five business days.”
But there is an additional element that could encourage more people to pay Colorado taxes using cryptocurrency: the fact that people who use crypto for tax purposes will have to pay additional taxes for this type of transaction in the form of capital. income tax.
“For people who would consider this, it might be a barrier to use,” said Kent Barton, a Colorado-based crypto professional who works as a tokenomics workstream leader at ShapeShift. Barton also founded ETHDenver.
“That’s one of the challenges right now. I think the federal government needs to figure that out,” added Barton.
One way is for the PayPal digital currency service that the country is using to start accepting more forms of cryptocurrency. Currently, PayPal can accept Bitcoin, Bitcoin Cash, Ethereum and Litecoin.
Barton believes that the State of Colorado can get more if the PayPal service also accepts stablecoins, which “allows you to have only dollars that you can send and it is treated like a cryptocurrency.”
“This is not a taxable transaction, because they are just treated like dollars. I bet that will lead to an uptick in how many people use this,” added Barton.
He speculates that another reason that people cannot pay taxes using cryptocurrencies is that the crypto market, like the stock market, has experienced a long bear market, and people may be reluctant to sell cheap crypto assets.
“I believe that many crypto users or investors who hold crypto may be reluctant to part with it now that prices are down,” Barton said.
The past year has been disastrous for cryptocurrencies. When Governor Polis announced the crypto tax payment initiative on February 18 at ETHDenver, the price of Bitcoin, the most well-known cryptocurrency, was $39,983.50. On December 15, the price dropped to $17,423.
Ether, the original coin of the open-source Ethereum blockchain, which gave its name to ETHDenver, was listed at $2,780.08 on February 18. The December 15 price dropped to $1,273.58.
This massive drops in the prices of cryptocurrencies contributed to November collapse of digital currency exchange and crypto hedge fund FTX, which faced a liquidity crisis that forced the company into bankruptcy. The founder, Sam Bankman-Friedfaces charges of fraud and conspiracy filed by federal prosecutors, in addition to an investigation by US regulators.
But state officials don’t see the low number of crypto payments for Colorado taxes as a sign of failure.
“Colorado is a progressive state, and to improve customer service and convenience, we want to accept payments in many ways. This new payment option is a continuation of providing customer convenience through pioneering digital services. Our goal is always to give Coloradans convenient options,” says Carr, who notes that there is no financial risk for the state, since it handles all transactions through PayPal, and adds that Colorado has received no complaints about the process to date.
For Barton, the fact that the State of Colorado is actually accepting tax payments in crypto is important to show the government’s recognition of the power of crypto and blockchain technology.
“I would say, more than anything, this real value, this real meaning, is that the state and the governor are signaling that, hey, instead of treating crypto or the industry as a pariah or treating crypto assets like poison, [they’re] legitimacy,” Barton said.
