By Josiah Wilmoth
Arizona residents may soon be able to pay their state taxes using bitcoin and other cryptocurrencies.
Arizona Legislators Submit Bill to Accept Income Tax Payments in Bitcoin
Arizona state bill 1091, sponsored by Republican state Senator Warren Petersen and co-sponsored by three other GOP legislators, would allow Arizona residents to pay their state income taxes using cryptocurrencies.
The text of the bill, which was introduced on Jan. 9, states that, in addition to physical checks, the State of Arizona will accept income tax payments made through a “payment gateway, such as bitcoin or other cryptocurrency, using electronic peer-to-peer systems.”
“The department shall convert cryptocurrency payments to United States dollars at the prevailing rate within twenty-four hours after receipt and shall credit the taxpayer’s account with the converted dollar amount,” the bill adds.
This could prove to be frustrating for taxpayers if cryptocurrencies retain their present volatility, as individuals would likely have to overpay their bills by 10 or 20 percent in case the price drops before the department converts the payment into USD. Twenty-four hours is a long time for the cryptocurrency markets.
However, the department could mitigate this problem by contracting with a third-party cryptocurrency payment processor, such as Coinbase or BitPay, both of which convert cryptocurrency payments to fiat currency at the point of sale for a minor fee, usually one percent according to their websites. Credit card processors, in contrast, often charge as much as three percent to process card payments.
Nevertheless, taxpayers who earn salaries in cryptocurrency or hold a large portion of their wealth in cryptoassets could find it convenient to take advantage of this service, even with the hassle of dealing with a constantly-fluctuating exchange rate.
Chipping Away at Bitcoin Criticisms
It is unclear whether the bill will receive a floor vote — much less pass — but the move nevertheless marks an important milestone for cryptocurrency adoption.
That’s because one of the chief criticisms against cryptocurrency’s outlook as a medium of exchange has been that governments will never accept them for tax payments. Economist Jeffrey D. Sachs, for instance, made this argument in a recent op-ed that proclaimed the “bitcoin bubble” will eventually burst.
While a state government accepting bitcoin is a far cry from a national government lending its tacit approval to cryptocurrency payments, widespread acceptance at the local level could normalize them and eventually lead to acceptance at the national level.
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