Arizona Says No to Paying Taxes With Cryptocurrencies

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One of more pointed arguments against the widespread adoption of cryptocurrencies like bitcoin is that unless you can use bitcoin to pay your taxes then the cryptobucks are not a real currency. For Americans, that means that the Internal Revenue Service (IRS) or a state tax authority must accept cryptocurrency as payment for citizens’ tax bills.

The Arizona Senate was considering a bill to accept cryptocurrency as payment for state taxes, but, as finally passed, the bill dropped all references to cryptocurrencies.

Arizona Senate Bill 1091 revised the statute relating to how tax payments could be made. Here’s the original proposed language on cryptocurrency payment that was eliminated from the final version:

2.  A PAYMENT GATEWAY, SUCH AS BITCOIN OR OTHER CRYPTOCURRENCY, USING ELECTRONIC PEER-TO-PEER SYSTEMS.  THE DEPARTMENT SHALL CONVERT CRYPTOCURRENCY PAYMENTS TO UNITED STATES DOLLARS AT THE PREVAILING RATE WITHIN TWENTY-FOUR HOURS AFTER RECEIPT AND SHALL CREDIT THE TAXPAYER’S ACCOUNT WITH THE CONVERTED DOLLAR AMOUNT.

The Arizona House and Senate did include a paragraph in the final bill giving the state tax collector the power to “develop, adopt and use a payment system that enables the immediate remittance and collection of tax in real time at the point of sale, including payments of additional amounts after audit.”

The issue is the value of a cryptocurrency payment in dollars during the proposed 24-hour period in which the tax agency would have had to post the payment. If, for example, bitcoin traded at $8,000 at the time a taxpayer sent in a $1,000 tax payment, but bitcoin value had risen to $8,500 by the time the payment was posted, the state would have to repay the taxpayer the difference. And vice-versa of course.

Why? Because the state must convert bitcoin into dollars in order to use the money. Until the state can pay wages and its other bills in cryptocurrency, accepting crypto payments for state taxes will always require conversion to dollars. The same goes for federal tax payments.

Arizona left a pathway open for adopting cryptocurrency payments for taxes, but that day may be a long way off.