Sebastian Sinclair

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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Arizona

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

Casey Wagner

<div id="highlights-block_61f446a60ea7d" class="highlights">
 <ul>
 <li>An Arizona legislator is hoping to make bitcoin a transactional currency in the state</li>
 <li>Federal law makes it difficult for states to legalize currencies other than the dollar </li>
 </ul>
 
</div>





A state senator in Arizona has introduced a bill that would make bitcoin legal tender in the state — although federal law could complicate things.&nbsp;



Arizona State Senator Wendy Rogers (R., District 6) introduced the <a href="https://www.azleg.gov/legtext/55leg/2R/bills/SB1341P.pdf" target="_blank" rel="noreferrer noopener">bill</a>, which seeks to add a statute to Arizona law making bitcoin a legal currency, on Tuesday. There was a second reading on the senate floor Wednesday. If and when a vote might take place has not yet been disclosed.&nbsp;



The US Constitution might make passing the bill a challenge, though, cryptocurrency law experts say.&nbsp;



“The Coinage Clause of the Constitution means that the power to determine what is and isn’t legal tender in the United States is the exclusive province of Congress,” said Preston Byrne, partner at law firm Anderson Kill. “If enacted, [the bill] would be largely symbolic.”&nbsp;



In the 1800s, states tried to work around the Coinage Clause by issuing their own “state bank notes,” but they had little success. In the National Bank Acts of 1865 and 1866, Congress effectively put an end to the practice by placing a 10% tax on payments made in currency other than national bank notes.&nbsp;



“Aside from the legality though, it begs the question of whether digital assets are actually ‘currencies’ or forms of ‘money,’” said Steve Gannon, attorney at Murphy and McGonigle. “In addition, for what purposes would Arizona be accepting digital assets as ‘legal tender?’ If it is simply another method of payment with respect to state contracts, that may be a limited use case that is worth an experiment.”&nbsp;



Even if the bill becomes law in Arizona, it’s unlikely to have much impact on usage of bitcoin in the state, Byrne said.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Arizona could certainly pass a law like this and the state government could choose to accept bitcoin as payment for Arizona taxes, but this would not change the legal treatment of Bitcoin as property from a federal tax perspective,” said Byrne. </blockquote>



“I also don’t think such a law could obligate Arizonans to accept bitcoin in a constitutionally acceptable way.”&nbsp;



The introduction of the bill follows Rogers’ promise to make Arizona a crypto-friendly state. In September 2021, she was appointed to the Blockchain and Cryptocurrency Study Committee, she announced on <a href="https://twitter.com/WendyRogersAZ/status/1436386764399292417?s=20&amp;t=GnHKvC7Ny56Q4Gg5wo-cpw" target="_blank" rel="noreferrer noopener">Twitter</a>.&nbsp;



The committee consists of members from the Arizona state House and Senate as well as digital asset industry members and advocates. The group seeks to “review data on the scope of blockchain and cryptocurrency throughout the country” and determine how the technology can play into Arizona’s existing financial infrastructure, according to government <a href="https://www.azleg.gov/icommittee/Blockchain%20and%20Cryptocurrency%20Study%20Committee.pdf" target="_blank" rel="noreferrer noopener">documents</a>.&nbsp;



Senator Rogers’ office did not immediately respond to Blockworks’ request for comment.



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