By now, most taxpayers understand that there are tax consequences associated with cryptocurrency, but ironically, until recently you couldn’t pay those taxes using cryptocurrency. That’s about to change: With the launch of OhioCrypto.com, Ohio will become the first state in the nation to accept tax payments using cryptocurrency.
“We are proud to make Ohio the first state in the nation to accept tax payments via cryptocurrency,” said Ohio Treasurer Josh Mandel. “We’re doing this to provide Ohioans more options and ease in paying their taxes and also to project Ohio’s leadership in embracing blockchain technology.”
Under the new payment system, not all taxpayers can make payment in cryptocurrency: It’s limited to businesses operating in Ohio. Offering the service to individual taxpayers is on the agenda, but Mandel hasn’t indicated any specific timeframe for the expansion.
Here’s how it works: If you operate a business in the State of Ohio and you have a tax bill, you can register online at OhioCrypto.com to pay your taxes. You can make payments on any of 23 eligible business-related taxes (you can find a list here), and there is no transaction limit.
The Treasurer’s office isn’t holding, mining or investing in cryptocurrency for payments or processing. All cryptocurrency payments are processed by a third-party cryptocurrency payment processor, BitPay. Those payments are immediately converted to dollars before being deposited into a state account.
“The State of Ohio is the first major government entity offering its citizens the option to pay with cryptocurrency,” said Stephen Pair, cofounder and CEO of BitPay. “With BitPay, Ohio can leverage blockchain technology and benefit from reduced risk and identity fraud as well as enabling quick and easy payments from any device anywhere in the world and get paid in dollars. This vision is at the forefront of moving blockchain payments into mainstream adoption.”
You’ll need to use Payment Protocol-compatible wallets to pay. Those include BitPay Wallet; Copay Wallet; BTC.com Wallet; Mycelium Wallet; Edge Wallet (formerly Airbitz); Electrum Wallet; Bitcoin Core Wallet; Bitcoin.com Wallet; BRD Wallet (breadwallet); and Bitcoin Cash (BCH) Wallets. If you don’t have one of these wallets, OhioCrypto.com advises you to create one and send some coin to it.
Currently, the Treasurer’s office only accepts Bitcoin for payment, but the plan is to add other cryptocurrencies in the future.
There is a cost associated with paying in cryptocurrency (it’s worth noting taxpayers who pay via credit cards or debit cards are also subject to fees from payment providers but are not assessed fees through the Treasurer’s office). Taxpayers paying using cryptocurrency are charged a transaction fee, network fee, and a miner fee. The miner fee will be displayed in the taxpayer’s wallet and not on OhioCrypto.com. The transaction fee will be 0% during an initial three-month introductory period, and after that time, it will be 1%. Fees are user fees and are not supplemented by state funds.
According to the Treasurer’s Office, “The State of Ohio will not pay Bitpay or any other company fees for processing or other services relating to the acceptance of crypto.”
It will be interesting to see if other state governments follow suit. A bill to accept bitcoin as payment for taxes was ultimately voted down, 264 to 74, by the New Hampshire legislature in 2016. A similar measure in Utah also failed to pass, while a bill to accept crypto for payments in Georgia stalled earlier this year. However, states are still trying: Arizona’s state legislature actually passed a crypto payment measure, but it was vetoed on May 16, 2018.
The Internal Revenue Service (IRS) doesn’t currently accept cryptocurrency as payment either. By law, the IRS issues Regulations (interpretations of the tax code) and other guidance about the kinds of payment which can be used to pay taxes. The IRS has authorized payment by check, money order, credit card and debit card—but not by Bitcoin or other cryptocurrency. (You can find more ways to pay your IRS tax bill here.)