Blockchain Faces Taxing Times.

AuthorMorton, Heather
PositionTRENDS

There's been no ignoring Bitcoin's eye-popping, and widely reported, spike in value. As of January, it had increased more than 1,000 percent in a year's time.

But even if the bubble bursts tomorrow, state lawmakers are responding with legislation to regulate digital currencies and blockchain, the technology that allows Bitcoin and other cryptocurrency systems to function.

Eight states Alabama, Connecticut, Georgia, New Hampshire, North Carolina, Pennsylvania, Vermont and Washington --have amended their money transmission laws to recognize virtual currencies. And five others--Arizona, Delaware, Illinois, Nevada and Vermont--have enacted or adopted blockchain legislation.

The Vermont General Assembly was the first to pass a blockchain bill in 2015, and laid further groundwork in 2016 when it created standards to determine the authenticity of records using blockchain technology within the state's rules of evidence.

Vermont lawmakers are now considering a bill that would allow newly formed companies to operate digital currency systems like Bitcoin and tax them at a penny per transaction. If it passes, it would be another first.

The bill, introduced by Senator Alison Clarkson (D) in January, would require a digital currency company to pay "a transaction tax equivalent to $0.01... per transaction for (1) each unit of currency mined or otherwise created; and (2) on each sale or transfer of one or more units of that currency."

Only companies with a physical presence in Vermont would be taxed, and they'd be exempt from all other applicable taxes.

The bill is meant to help "build Vermont's fluency in financial technologies, to unleash 21st century opportunities in our state," Clarkson told Bloomberg Tax. Before the private sector can use digital currency, the state must "provide a regulatory framework in which cryptocurrency can thrive, which would be supported by a light transactional tax," she said.

Not everyone wants cryptocurrency transactions taxed. The Chamber of Digital Commerce, a Washington-based trade group, endorses an unrestrictive approach in which digital currency transactions are treated like any other. To promote the use of blockchain technology, Nevada's law, which passed in June 2017, defines...

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