The state has become the first in the U.S. to accept cryptocurrency for tax payments.
Colorado has become the first state in the nation to accept cryptocurrency for tax payments.
Governor Jared Polis made the announcement yesterday during a speech at Denver Startup Week. The website for the state’s Department of Revenue confirms that, for tax payments starting Sept. 1 this year, the state government will now accept cryptocurrency as an additional form of payment for all state taxpayers. This includes individual income tax, business income tax, sales and use tax, withholding tax, severance tax, and excise fuel tax.
There are some caveats, though.
Cryptocurrencies used this way will be converted to dollars and then remitted to the revenue department. Doing so will incur a service fee of $1, plus 1.83% of the payment amount. So far, only those with PayPal Personal accounts will be able to pay this way because the processing is being handled via a third-party partnership. Transfers from external wallets to a PayPal wallet have to be done through the PayPal mobile app. Making this transfer, the state government warns, may incur additional fees from PayPal or miner/gas fees. A FAQ also noted that selling cryptocurrency via the PayPal Cryptocurrency Hub (from which the tax payments will be made) is a taxable event.
The FAQ also warned that taxpayers need to pay the entire value of the invoice with a single cryptocurrency. It said, in all capital letters, that it is vitally important to check that one has sufficient balance to pay the tax before proceeding. Further, if someone starts the process but leaves after selling the cryptocurrency in the PayPal Cryptocurrencies Hub, but before completing the entire checkout process, their cryptocurrency will still have been sold and the U.S. dollar equivalent deposited into their PayPal balance.
While Colorado is the first state, it will soon be joined by Utah: Its governor in March signed a bill that would require the state government to accept cryptocurrencies for tax payments starting in 2023.