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Colorado Governor Announces Plan to Accept Crypto for State Taxes

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Colorado Governor Announces Plan to Accept Crypto for State Taxes
Colorado Governor Announces Plan to Accept Crypto for State Taxes

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The governor of Colorado, Jared Polis, has said that he is making plans for the state’s residents to accept crypto payments. According to Polis, he is optimistic that the launch will happen soon.

At the Consensus 2021 virtual conference organised by CoinDesk, the governor stated that “I’d be thrilled to be the first state to let you pay your taxes in a variety of cryptos.”

Polis Acceptance of Crypto

When Polis was a congressman, he became the first political figurehead to accept donations to his campaign through Bitcoin. This development came after the 2014 FEC ruling that showed hope towards Bitcoin and crypto. Polis made his initial stand on cryptocurrencies when responding to a US senator who wanted to ban Bitcoin as an opposing move to creating a federal structure that would back cryptocurrencies.

At the time, Polis suggested that a ban on Bitcoin and cryptocurrencies would be the same as using a ban to restrict US dollars.

“The exchange of dollar bills, including high denomination bills, is currently unregulated and has allowed users to participate in illicit activity,” Polis stated. Speaking during the CoinDesk Consensus 2021, it revealed that Polis was still a great enthusiast for cryptocurrencies.

In his statement, the governor confirmed that Colorado would be the hub of blockchain activities in the United States. This would, in return, boost investments in the state, create employment opportunities, boost innovations, and boost data security in the private and public sectors. To initiate the process would start by allowing those who reside in the state of Colorado to use virtual assets to pay for state taxes.

The US Treasury recently made it clear that it wants crypto transfer of $10,000 or greater to be reported to the IRS, as regulations around taxation  of crypto tighten

Commenting on the implications for crypto-holding taxpayers in the US, Shane Brunette, the chief executive of Crypto Tax Calculator, said: “Given the current IRS guidance, an investor would need to consider the capital gains that would be realised when selling cryptocurrency to pay their taxes. What’s more, the payment of taxes would usually fall into the following financial year, so any benefits from realising a capital loss would not be immediately available.”

Crucially, regarding any move to allow crypto to be used to directly pay tax liabilities, Brunette adds: “However, a common argument to why the USD has value is because you have to pay taxes in it. A change in this process would be symbolically significant.”

Other states aiming to be crypto-friendly

Other states have also been looking into ways they can be more digital asset-friendly. In 2018, Ohio allowed companies operating in the state to use to make tax payments. Crypto payments firm BitPay, another crypto firm, would also convert the digital assets paid as taxes into fiat currency.

Two more states with positive attitudes towards cryptocurrencies are Arizona and Illinois, which are both considering accepting Bitcoin and other digital currencies as tax payments. However, a motion raised in the two states did not proceed after the legislation phase.

Ohio’s program to use to make tax payments stopped in 2019 when Robert Sprague was appointed as the new state treasurer. Sprague stated that only 10 companies had implemented the program in making tax payments.

Positives will depend on IRS guidance regarding crypto disposals

Brunette emphasises the difference between state and Federal law in the US and the positive implications of not triggering a taxable event by being forced to dispose of crypto when converting to fiat: “If guidance changed and the IRS no longer considered disposal of cryptocurrency when paying taxes to trigger a capital gain event this would have significantly positive tax implications. However Colorado state taxes and the IRS are quite separated.”

Over the past few years the crypto ecosystem has matured and its infrastructure has become more robust. This means that states pushing for crypto adoption could have greater success than previously seen.

Polis said that he will liaise with the state’s director of revenue, Mark Ferrandino, to launch the Colorado program.

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