Ohio now lets businesses pay taxes with cryptocurrency
Beyond adding legitimacy, this could be an opportunity to test some of the functional benefits of crypto.
The state of Ohio now lets businesses pay tax with cryptocurrency. It's a move that might baffle alongside the recent cryptocurrency price plunge, but it has probably been en route for several months now as part of the state's intention of becoming a blockchain technology hub.
According to plan
As Ohio senator Matt Dolan said in August, "In order for Ohio to compete for new investments and jobs, we must welcome innovation, new technology and advanced energy. Embracing blockchain technology is a step forward to achieve these goals."
Accepting cryptocurrencies as tax might be a reasonable extension of that. It might be especially reasonable because the benefits of cryptocurrency transactions remain regardless of prices, and these benefits seem to be underpinning the decision, according to Ohio's new crypto tax portal at ohiocrypto.com.
It lays out some of the benefits of paying taxes in cryptocurrency on its "how it works" page, including the following:
- Real-time tracking of payments through blockchain technology
- Security. "Cryptocurrencies cannot be transferred to third parties without user initiation, thereby practically eliminating fraud," it says.
- Low fees.
- Transparency. "Anyone can view all transactions on the blockchain network," it explains. This might swing both ways though, and it's likely that some businesses don't really want their tax payments, and the financials that can be deduced from them, to be laid out for competitors.
Odds are that some businesses will continue cashing out for fiat before paying taxes, rather than having to deal with some of the downsides of crypto payments.
But it's also reasonable to assume that some will make good use of the new option, especially if Ohio's efforts to attract more blockchain and cryptocurrency businesses are bearing fruit.
Want to collect more tax? Make paying easier
Regardless of what the crypto market is doing, the benefits remain. In addition to the above, there might also be some second-string advantages to adopting crypto tax payments, as a study commissioned by the New Zealand Law Foundation found right before it suggested that New Zealand should also consider accepting crypto for tax payments.
First, it could well mean collecting more tax from cryptocurrency businesses and users, because it reduces the steps for making payments, and the psychological obstacles of parting with crypto. Plus, it also means the state of Ohio can use its own newfound involvement in cryptocurrency to help bolster the local crypto businesses, by using their services.
That might not yet be the case here though. Ohio will be using BitPay (headquartered in Alpharetta, GA), one of the United States' best-known cryptocurrency payment processors, to handle the system. Those who want to file taxes in cryptocurrency will be making the crypto payments to BitPay, which will then convert the crypto to US dollars for the state treasurer's office.
The trustlessness and transparency of blockchain technology might make this system much more effective than it could be otherwise. With blockchain, there's no chance of payments getting lost en route. If a filer points at their transaction on the blockchain, it can be proven beyond almost any doubt that BitPay has received the payment, and exactly how much it received. This could go a long way towards easing the administrative burden involved with tracking down payments.
Still, the treasurer's office won't be directly handling the crypto itself. But even so, it gives a solid dose of legitimacy to cryptocurrencies like bitcoin as a payment system. This is backed up by state treasurer Josh Mandel, who spearheaded the move, and explicitly said he sees bitcoin "as a legitimate form of currency."
In the short run, the added legitimacy might be the most beneficial element of the decision for cryptocurrencies. But in the longer run, it might be an excellent chance for the technology to demonstrate its usefulness as an actual payment method.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, XLM and BTC.
- Coinbase IPO: How investors can get in before it lists
- Crypto market dives but Ethereum’s price remains strong – here’s why
- Ethereum breaks new record price and looks set to go higher
- Ethereum price soars on the heels of Visa’s crypto announcement
- PayPal launches cryptocurrency payments sending Bitcoin’s price soaring