States Moving Toward Sales Tax That Would Hit Crypto Services

States Moving Toward Sales Tax That Would Hit Crypto Services

State legislatures in Arizona and Rhode Island have entered draft bills that would, if passed, slot enterprises and development projects dealing with virtual currencies as money facilitators. That designation would make these crypto services and groups subject to a specific sales tax. 

Also read: Into the Crypto Breach: Tezos STOs, an ETF, Updated ICO Guide, Oh My!

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Arizona Could Angle to Tax Crypto Services as ‘Market Facilitators’

On Feb. 12th, more than 20 state representatives introduced draft bill HB 2702 to Arizona’s House of Representatives.

In its current form, the bill would amend current state law regarding a sales tax on “market facilitators,” the definition of which the act would expand to cover companies dealing in and around cryptocurrencies.

ANOTHER ONE—UGH!!! #Arizona was previously one of the #blockchain friendliest US states, but if this bill becomes law it will join #RhodeIsland & #NewYork as the worst. HOW DARE YOU TAX SOFTWARE DEVELOPMENT AND R&D??? #idiotic @propelforward @Tyler_Lindholm https://t.co/x4AvIdVt8g

— Caitlin Long ? (@CaitlinLong_) February 12, 2019

Specifically, the proposed legislation would make it so companies “providing a virtual currency that buyers are allowed [ …] to use” and enterprises “developing software or conducting research and development” that foster electronic marketplaces would be money transmitters in the state and subject to an associated sales tax.

Looking ahead, the draft bill is in the earliest stage of its life cycle. It will still need to pass votes in both Arizona’s House and Senate and then be approved by the state’s governor, Doug Ducey, before it could take effect.

New Rhode Island Bill Would Work Similarly

On Feb. 7th, the five state senators introduced S0251 to the Rhode Island Senate.

Per the draft bill’s executive summary, it would expand “requirement to collect sales tax to remote sellers in a way that conforms to a recent U.S. Supreme Court decision making it easier for states to compel collection of the sales tax from retailers who do not have a physical presence in their state.”

ARE YOU KIDDING?? Check out #RhodeIsland #crypto tax proposal—it’s so broad that it includes taxing software development + R&D. Get out of states that show by actions they don’t want #blockchain cos & come to #Wyoming where we do! @Tyler_Lindholm @SenatorDriskill @GordonGovernor https://t.co/We4n3hNkIx

— Caitlin Long ? (@CaitlinLong_) February 10, 2019

Notably, the act’s virtual currency provisions are worded almost identically to Arizona’s HB 2702: it would mandate a marketplace facilitator sales tax on companies “providing a virtual currency that buyers are allowed […] to use” and on groups conducting “software development or research and development activities” related to marketplaces.

In the wake of S0251’s introduction, NYU Adjunct Professor and Athena Blockchain General Counsel Drew Hinkes noted that such marketplace sales tax bids have been increasing after the U.S. Supreme Court’s ruling last summer in South Dakota v. Wayfair.

More state legislatures could end up following suit in the coming months accordingly.

Pennsylvania, Wyoming Take Steps in Opposite Direction

Meanwhile, other U.S. states like Pennsylvania and Wyoming have seen public officials moving away from regulating cryptocurrency services as money transmitters.

Last month, the Pennsylvania Department of Banking and Securities (DoBS) issued an advisory declaring that cryptocurrency exchanges and crypto ATMs weren’t “money transmitters” in their jurisdiction.

That status means these types of enterprises don’t have to seek a money transmitter license to operate in the state.

As for Wyoming, the state has seen a series of crypto-friendly bills advanced in its legislature in recent weeks, with no signs of that friendliness slowing down for the foreseeable future.

The grand question is whether federal guidance on how to approach crypto services is coming any time soon.

In January, two members of the Congressional Blockchain Caucus introduced a bill that would exempt exempt blockchain developers and enterprises from being money transmitters in the U.S. The proposed law is currently being reviewed in the  House Banking Committee and the House Judiciary Committee.

What’s your take? Are Arizona and Rhode Island moving the wrong way on taxing crypto services? Let us know in the comments section below. 

Images via Pixabay