Sebastian Sinclair

The Colorado Division of Motor Vehicles (DMV) said Thursday it has begun accepting crypto as payment for online services as the state continues its drive to find use cases for the asset class.



DMV customers can now use PayPal crypto to pay for driver&#8217;s licenses, vehicle registrations, and other services, according to a <a href="https://dmv.colorado.gov/press-release/mydmv-now-accepts-cryptocurrency-as-payment-for-dmv-services">statement</a>.



To pay with crypto, customers will be directed to PayPal, where they can select the asset they want to use. PayPal will then convert the crypto to dollars and remit the payment to the DMV.



There is a service fee of $1 plus 1.83% of the DMV total for paying in cryptocurrency. PayPal fees may also apply. PayPal is the only provider accepted at this stage, the DMV said.



A “sufficient” sum of crypto is exchanged for dollars to encompass both the transaction and associated fees, which is then forwarded to the DMV to finalize the online process.



&#8220;We’re always looking for ways to better serve Coloradans and leverage technology to offer our services,&#8221; said Electra Bustle, senior director of the DMV.



&#8220;This new online cryptocurrency payment option is yet another way the DMV is providing innovative and convenient service delivery to our customers.&#8221;



The DMV is the first government agency in Colorado to accept cryptocurrency. Other states, including California, Florida, and New York, are also considering accepting crypto payments.



Early last year, Colorado became the first state to accept the asset class as a form of payment on <a href="https://blockworks.co/news/colorado-residents-can-now-pay-state-taxes-with-crypto-for-a-fee">tax receipts</a>. PayPal, which recently <a href="https://blockworks.co/news/paypal-launches-stablecoin">launched its own stablecoin</a> to much fanfare, was tapped as the payment provider for tax payments as well.



While the initiative was initially praised as a progressive and forward-thinking approach, early reports indicate adoption for <a href="https://blockworks.co/news/colorado-state-income-taxes-crypto">that particular use case has been slow</a>.



The tech-savvy state also took the mantle of being the first to implement blockchain for government infrastructure back in 2019 following the passage of the state’s <a href="https://leg.colorado.gov/bills/sb18-086">Cyber Coding Cryptology for State Records Act</a> the year before.



The city of Denver also <a href="https://blockworks.co/news/colorado-residents-can-now-pay-state-taxes-with-crypto-for-a-fee">held the first US election</a> with blockchain technology for overseas ballots, Blockworks was told last year.



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Colorado DMV taps PayPal to facilitate crypto payments

Katherine Ross

Residents of Colorado are able to pay their <a href="https://blockworks.co/news/colorado-residents-can-now-pay-state-taxes-with-crypto-for-a-fee">state income taxes</a> in select cryptocurrencies. This is the first year that residents are able to use this method, after Governor Jared Polis announced the change last September. 



However, as <a href="https://www.5280.com/did-any-coloradans-pay-their-state-income-taxes-in-crypto/">reported</a> by 5280, only 11 residents opted to pay their state income taxes with crypto by April 14. In 2020, Colorado had 3.1 million individual tax returns.



Applicable taxes include individual and business taxes, withholdings, severance and excise fuel taxes.&nbsp;



Residents who choose to pay their taxes with crypto have to go through PayPal so that the payment provider can “deposit dollars into the state’s treasury,” according to a <a href="https://twitter.com/GovofCO/status/1496545511469367306?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1496545511469367306%7Ctwgr%5Eeb2c0cf4a2c20a4cc59644c1affd5582c58cb900%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Ffinance.yahoo.com%2Fnews%2Fcolorado-governor-haven-crypto-130752347.html">tweet</a> from Polis’ Twitter account last year.



“Our budget is still in dollars, our expenditures are still in dollars, and, of course, we don’t want to take the speculative risk of holding crypto, so we will be having a transactional layer there,” Polis said in an ETHDenver conference last February. “It will be entering our systems as dollars. For consumer convenience, we want to accept payments in a wide variety of cryptocurrencies.”&nbsp;



And there are fees that are tied to paying with crypto — similar to the fees associated with paying by credit card. Transactions have a fee of $1, as well as 1.83% of the total, according to the Department of Revenue. 



Not to mention that residents may be taxed for using the crypto if the crypto used–PayPal currently supports bitcoin, ethereum, litecoin and bitcoin cash–has gone up in price since the resident bought it thanks to capital gains taxes.



Polis has been a supporter of blockchain technology for a number of years. In 2019, he signed an <a href="https://leg.colorado.gov/bills/sb19-023">act</a> called the Cryptocurrency Exemption Colorado Digital Token Act, which “provides limited exemptions from the securities registration and securities broker-dealer and salesperson licensing requirements for persons dealing in digital tokens”



Colorado’s Department of Revenue did not immediately respond to a request for comment.



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Only 11 Colorado Residents Paid Their State Income Taxes With Crypto This Year

Looking to the future, policymakers in Arizona referred an <a href="https://www.azleg.gov/legtext/56leg/1R/bills/SCR1007P.pdf" target="_blank" rel="noreferrer noopener">amendment</a> to the state constitution in the Arizona State Legislature last week, seeking to exempt digital assets from property taxation.



Following its second reading on Jan. 23, the resolution now has a small shot of making it to a ballot initiative. If approved by a majority vote in the legislature and subsequently passed by voters, the amendment would make crypto tax-exempt at the state level.



It would also make it one of the more favorable states for tax purposes, alongside Wyoming, which passed a law <a href="https://blockworks.co/news/daos-favor-classic-tax-havens-passing-up-crypto-friendly-us-states">recognizing a DAO’s legal status</a> as akin to a limited liability company. 



Arizona had originally toyed with the idea of making <a href="https://blockworks.co/news/arizona-considers-making-bitcoin-legal-tender">bitcoin legal tender</a> early last year, but that bill was subsequently <a href="https://legiscan.com/AZ/text/SB1341/2022" target="_blank" rel="noreferrer noopener">shelved</a> shortly after being introduced.



On a federal level, all individuals are required to pay income and capital gains taxes, but individual US states approach taxation differently, with some eschewing the concept of capital gains or personal income tax altogether at the state level.



Income tax at the state level is triggered when a user produces additional income deriving from mining, staking or airdrops, while capital gains (or losses) are triggered when a cryptoasset is disposed of on the basis of its cost basis and sale price.



Aside from Arizona, here are four other “friendly” states based on regulatory and tax advantages ahead of the federal tax filing deadline come April 18.



<h3 class="wp-block-heading">Wyoming</h3>



Wyoming, long-viewed as one of the country’s most progressive crypto regions, does not collect personal or corporate income tax. The state also began regulating the industry early on by introducing a financial <a href="https://wyomingbankingdivision.wyo.gov/banks-and-trust-companies/financial-technology-sandbox" target="_blank" rel="noreferrer noopener">technology sandbox</a> for testing financial products and services.



As mentioned, it formally legalized DAOs in 2019, allowing for clearer guidelines on how those entities would be taxed. Typically, LLCs don’t pay taxes on business incomes, but instead, members are required to pay taxes on their share of the LLC&#8217;s profits.



The state also passed its <a href="https://blockworks.co/news/legal-expert-avanti-may-face-uphill-battle-getting-fed-payment-access">charter for banks</a> dealing in digital assets back in 2019 making it possible for crypto firms to both hold customer cash deposits and custody crypto — later able to be traded on exchanges.



High electricity prices have caused some crypto miners to balk at setting up shop in the state, though Wyoming has recently attempted to tackle the issue by introducing two bills that may result in bitcoin <a href="https://blockworks.co/news/pro-crypto-wyoming-not-yet-pro-enough-to-attract-bitcoin-miners">miners paying less</a>.



<h3 class="wp-block-heading">Texas</h3>



Like Wyoming, Texas allowed for <a href="https://www.dob.texas.gov/sites/default/files/files/news/Industrynotices/in2021-03.pdf" target="_blank" rel="noreferrer noopener">chartered banks</a> to custody digital assets in June 2021, which was viewed at the time as a way to tap into the state&#8217;s booming domestic crypto market. 



Coinciding with its cheap electricity — beneficial to crypto mining activity two years ago — the state also features no income tax.&nbsp; Still, Texas does not recognize crypto as legal money and instead is concerned with the asset class as a taxable commodity on a transactional basis.



The state does not require firms, such as exchanges, to obtain a money transmitter’s license. It also passed its <a href="https://freemanlaw.com/cryptocurrency/texas/" target="_blank" rel="noreferrer noopener">Texas Virtual Currency Bill</a> in 2021 which provides a legal definition of digital assets. There is no income tax in the state.



Miners too benefit from a favorable framework that was put in place for firms to profit from 10-year tax abatements and tax credits, alongside additional state training for their workforce.&nbsp;



<h3 class="wp-block-heading">Florida</h3>



Florida, like Wyoming and Texas, does not feature a state income tax.&nbsp;



The state has a number of high-profile politicians opting for local crypto and blockchain regulation, including Miami Mayor Francis Suarez, who previously pushed for city residents to <a href="https://www.newsweek.com/miami-passes-resolution-allow-paying-city-workers-bitcoin-attempt-woo-big-tech-1568784" target="_blank" rel="noreferrer noopener">receive their paychecks</a> and pay for their property taxes in bitcoin.



While the state’s governor <a href="https://blockworks.co/news/desantis-says-florida-should-be-willing-to-accept-taxes-in-crypto">Ron DeSantis floated the idea</a> of allowing businesses to pay taxes using crypto to Florida’s Legislature’s 2022 session, his proposed measures failed to pass. 



As such, the state currently does not address the sales and use tax treatment of transactions involving crypto though, like Wyoming, a money transmission license is not required courtesy of changes made to <a href="https://www.flsenate.gov/Session/Bill/2022/273" target="_blank" rel="noreferrer noopener">House Bill 273</a>.



<h3 class="wp-block-heading">Colorado</h3>



Colorado, unlike other states listed, does tax income at 4.55% including wages and salaries deriving from crypto activity.&nbsp;



The outlier here is that Colorado is attempting to position itself as a crypto-friendly state by ensuring broader digital asset use cases for tax purposes.



In September of last year, Colorado’s Department of Revenue <a href="https://blockworks.co/news/colorado-residents-can-now-pay-state-taxes-with-crypto-for-a-fee">began accepting crypto as an additional form of payment</a> for all resident taxpayers, becoming the first US state to do so.&nbsp;



That includes individual income tax, business income tax, sales and use tax, withholding tax, severance tax and excise fuel tax.



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These 5 Crypto-friendly US States Show Initiative on Tax Laws

Casey Wagner

<div id="highlights-block_632a0c84b6971" class="highlights">
 <ul>
 <li>Colorado allows for crypto tax payments, and they cost less than credit card transactions</li>
 <li>Taxpayers may be subject to additional taxes down the line</li>
 </ul>
 
</div>



Colorado residents can now pay state taxes via cryptocurrency, a move Gov. Jared Polis said carries lower fees than credit card payments.&nbsp;



Colorado is partnering with PayPal’s cryptocurrency arm on the endeavor. The service fee for such transactions is $1.00, plus 1.83% of the total, according to the state’s <a href="https://www.colorado.gov/revenueonline/_/#2" target="_blank" rel="noreferrer noopener">Department of Revenue</a>. 



Taxpayers opting to use direct debit are not subject to fees. Credit card payments impose a $0.75 fee, plus 2.25% of the net payment.&nbsp;



Residents can —&nbsp;for the first time — pay individual income tax, business income tax, sales and use tax, withholding tax, severance tax and excise fuel tax using cryptocurrency.&nbsp;



Transactions can only be completed through PayPal personal accounts, as opposed to PayPal business accounts, and payments must be made in full using only one cryptocurrency, the Department of Revenue said.&nbsp;



“We are touting Colorado as the center of the crypto economy,” Polis said in an <a href="https://www.coindesk.com/video/recent-videos/colorados-governor-announces-the-state-will-accept-crypto-payments-for-taxes-joins-ethdenver-to-deliver-keynote-support-blockchain-hackathons/" target="_blank" rel="noreferrer noopener">interview</a> ahead of the ETHDenver conference conference in February. “We have not only very favorable laws and rules, but we also have a great ecosystem of innovation here.”



The Department of Revenue’s website did not list specific acceptable cryptocurrencies, but PayPal supports bitcoin, bitcoin cash, ether and litecoin.&nbsp;



“Our budget is still in dollars, our expenditures are still in dollars, and, of course, we don’t want to take the speculative risk of holding crypto, so we will be having a transactional layer there,” Polis said. “It will be entering our systems as dollars. For consumer convenience, we want to accept payments in a wide variety of cryptocurrencies.”&nbsp;



Taxpayers opting to use cryptos should expect additional fees down the line. They will be responsible for keeping track of these transactions and determining tax obligations, legal experts said.



“Colorado’s plan to accept crypto currency for state tax payments and other government fees is proof of crypto’s wide acceptance as both an investment and payment method,” Kell Canty, CEO of Ledgible, said, at the time of the initial plan announcement. “Of course, using crypto to pay taxes does not change the tax treatment of the transaction for federal income or state income tax purposes.”



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Colorado Residents Can Now Pay State Taxes With Crypto, for a Fee

<div id="highlights-block_620d4194572db" class="highlights">
 <ul>
 <li>Colorado is hoping to accept tax payments in crypto by the end of this summer</li>
 <li>Paying taxes in an appreciating asset can get complicated, experts warn</li>
 </ul>
 
</div>



Years after becoming the first state to use blockchain technology in government infrastructure, Colorado is looking to accept cryptocurrencies for tax payments, its governor announced Wednesday.



“We are touting Colorado as the center of the crypto economy,” Colorado Governor Jared Polis said in an <a href="https://www.coindesk.com/video/recent-videos/colorados-governor-announces-the-state-will-accept-crypto-payments-for-taxes-joins-ethdenver-to-deliver-keynote-support-blockchain-hackathons/" target="_blank" rel="noreferrer noopener">interview</a> ahead of the ETHDenver conference Wednesday.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We have not only very favorable laws and rules, but we also have a great ecosystem of innovation here.”</blockquote>



The state hopes to accept cryptocurrencies for state tax payments and other state transactions, such as permit or license payments, by the end of this summer, Polis said. Colorado will have to partner with a crypto company to accept and convert the cryptocurrencies, he added.



“Our budget is still in dollars, our expenditures are still in dollars, and, of course, we don’t want to take the speculative risk of holding crypto, so we will be having a transactional layer there,” the Democrat said. “It will be entering our systems as dollars.”



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“For consumer convenience, we want to accept payments in a wide variety of cryptocurrencies.”&nbsp;</blockquote>



For Colorado citizens looking to use crypto for their tax obligations, it could get complicated, some tax experts point out.



“Colorado’s plan to accept crypto currency for state tax payments and other government fees is proof of crypto&#8217;s wide acceptance as both an investment and payment method,” Kell Canty, CEO of Ledgible, said. “Of course, using crypto to pay taxes does not change the tax treatment of the transaction for federal income or state income tax purposes.”



The taxpayer will be responsible for keeping track of these transactions and determining tax obligations, legal experts said.



“The challenge is principally borne by the taxpayers, for whom the disposal of crypto is a tax event which will create a gain or loss that needs to be accounted for in the following tax year,” said Preston Byrne, partner at law firm Anderson Kill.



Paying taxes with crypto creates more tax implications for citizens, Shehan Chandrasekera, head of tax at CoinTracker, agreed.



“If you are spending appreciated cryptocurrency to pay taxes, that will trigger more capital gains — a never-ending cycle,” he said. “Spending an appreciating asset for something like taxes is not wise, in my opinion.”



Citizens looking to pay taxes with crypto are going to have to be very careful about where these funds are coming from, said Jordan Bass, owner of Taxing Cryptocurrency. 



&#8220;It could potentially be easier to make large payments over crypto versus sending a check, maybe for someone that lives mostly on-chain it would make sense,&#8221; Bass said. &#8220;It sounds cool, making Colorado more blockchain friendly, but I see this as maybe only benefiting a select few.&#8221; 



Polis’ tax announcement comes on the heels of several initiatives in Colorado to increase blockchain-driven solutions in government.



“The city of Denver held, I think it was — at least in the United States — the first election with blockchain technology for our overseas ballots,” Polis said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We believe this is a big solution on privacy, as well as on efficiency, and we&#8217;re very excited about what that means for empowering people to control their own information.”</blockquote>



Colorado’s lower taxes and more lenient crypto-related regulatory guidelines make the state attractive to digital asset companies, Polis added.



“We are pushing back against the feds wherever we can around creating the opportunity for innovation in this sector,” he said. “The state is an asset in terms of defending the rights and freedoms of people rather than infringing on them.”



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