Colorado taxpayers can now pay their taxes in Bitcoin, Ether and other cryptocurrencies under a one-of-a-kind state tax payment program in conjunction with PayPal, the state’s Department of Revenue said Tuesday.
Businesses and individuals will be able to use cryptocurrency assets to pay tax duties under Colorado’s primary tax programs including the individual income tax, business income tax, sales and use tax, withholding tax, severance tax, and excise fuel tax. Crypto is one of several options Colorado taxpayers have for the payment of taxes including cash, check, money order, credit or debit card, ACH credit, and E-check.
Because Colorado can’t directly accept crypto itself, the Revenue Department has contracted with PayPal to broker each transaction and immediately convert digital currencies into US dollars. That means paying in crypto will come at a price, with the payment processor assessing a fee on each transaction. For now, tax payments are accepted only in Bitcoin, Bitcoin Cash, Ether, and Litecoin for the payment of Colorado taxes, a PayPal spokesman said.
The state began with a “soft launch” on Sept. 1, but the program is now fully operational, agency spokesperson Daniel Carr said on Tuesday.
“Cryptocurrency has been modified as an additional payment option for taxpayers who are ready to complete their online transactions to pay for their state taxes on Revenue Online,” he said.
Utah is the only other state that has taken steps toward accepting digital currencies for the payment of statewide tax debts. Legislation (H.B. 456) creating the program directed the Utah Division of Finance to start collections by Jan. 1, 2023. Ohio had a program in 2018, but it was quickly rescinded after Attorney General Dave Yost (R) issued an opinion finding that the state treasurer never had clear legal authority to operate the program.
Gov. Jared Polis (D), a strong proponent of crypto and digital innovation, highlighted the tax program during a technology conference on Monday. Polis announced the initiative earlier this year, vowing to accept tax payments in digital currency by the end of the summer.
As a hedge against the extreme volatility associated with digital assets, Colorado is using a third party to assume any valuation risk and convert crypto to US dollars before remittance to the state. Several cryptocurrencies, including Bitcoin, have plummeted in value after peaking late last year.
Taxpayers will be directed to use PayPal, where they will be able to select their desired cryptocurrency for the payment, Carr said. Sufficient digital assets to cover the tax obligation and associated fees will then be remitted and converted to dollars before moving to the revenue department. The transactions will take between three and five business days to clear.
Taxpayers will also pay a premium to transact their tax obligations in digital currencies. Services fees of $1 per transaction, plus 1.83% of the payment amount, will be charged. PayPal purchase fees and other charges—imposed when transferring cryptocurrency from an external wallet to the PayPal Cryptocurrencies Hub—may also apply.