Colorado To Accept Cryptocurrency For Taxes, A First In U.S.

DENVER, CO — Colorado is poised to become the first state in the nation to accept cryptocurrency for taxes.

Gov. Jared Polis tweeted Wednesday that the state is getting a payment provider to accept cryptocurrencies. That money will then be deposited in dollars into the state’s treasury for the equivalent amount.

"It is kind of like credit card payments, with the bonus that there are no returned payments," Polis tweeted.

Cryptocurrency, for the uninitiated, is a type of digital money that uses encryption technology to make it secure. It is not, however, the same as virtual currency, like those used in virtual worlds, such as online games.

Bitcoin is the most popular cryptocurrency system.

Bitcoins, like other cryptocurrencies, are not physical bills or coins but are instead lines of computer code that are digitally signed each time they move from owner to owner.

You may have also heard of blockchain in reference to cryptocurrency. For those who are unfamiliar with it, blockchain is a digital ledger that records cryptocurrency transactions.

“In Colorado, we’ve been laying the groundwork to be a center of crypto and blockchain innovation for a number of years," Polis said in a statement. “We see it as a critical part of Colorado’s overall innovation ecosystem.”

Other states are considering similar moves, including Wyoming and Arizona, where lawmakers proposed allowing the state to accept taxes in the form of cryptocurrencies. The Arizona legislation would recognize Bitcoin as legal tender, Politico reported, and Wyoming would take any cryptocurrency for sales and use taxes. The bills face legal hurdles, however. The Constitution bans states from issuing their own money, and the federal government treats the digital currency as property, meaning citizens would have to pay taxes on cryptocurrencies before they could pay taxes with that digital money.

As many as 20 states have some sort of crypto legislation in the works, according to CNBC.

Polis, a Democrat, told CNBC that Colorado has been an early adopter of cryptocurrency transactions, becoming the first state to hire a blockchain architect, sponsoring "ETHDenver" and hosting so-called "hackathons" that are focused on blockchain innovations for the state. He said Colorado will accept crypto payments to make paying faster and more convenient for residents.

Polis addressed the notorious volatility of cryptocurrencies, saying the state cannot be in the business of having exposure to a market where securities such as cryptocurrencies wildly fluctuate.

"You never know what the future brings, but all of our expenses are in dollars," he said with a laugh. The legislature also approves the budget in dollars.

So while the state will accept cryptocurrency payment for taxes, that money will be converted by an intermediary into dollars for the state's purposes. He said he's not worried by fluctuating value because the state won't hold cryptocurrency.

"From an external facing portal, we expect by this summer, pretty soon, to accept crypto for all of our state tax-related purposes," he said. "And then we plan to roll that out across all of state government for things as simple as drivers licenses or hunting licenses a few months after that."

Blockchain, Polis said, could also change how Colorado handles things such as elections. Denver used blockchain for about 8,000 overseas and military ballots in the 2020 municipal elections. The technology is also being used in agriculture and agriculture-technology industries, as well as various co-ops.