In some of the most recent news of adoption for U.S. consumers, Illinois is the latest state to consider taking cryptocurrencies as payment for taxes. The state is one of three in the U.S. to consider allowing residents to pay their tax bill via cryptocurrency (joining both Georgia and Arizona), with all three having similar pieces of legislation up for discussion. The proposals would allow for residents to pay their tax bill with cryptocurrency where the relevant tax authorities will convert the cryptocurrency back into U.S. dollars upon receiving payment.
Illinois state representative Michael J. Zalewski (D, 23rd District) introduced House Bill 5335 last month where it has since been assigned to the Illinois Revenue and Finance Committee. In its current state, the bill is certainly still a work in progress. Though some provisions have been included in the legislation to outline what Zalewski and advocates believe will be crucial for the implementation of such a decision, many questions remain.
Because the bill is still so young, there continue to be concerned about which cryptocurrencies will be accepted for payment and how the conversion will be done. As outlined in HB 5335, there is no provision clarifying which cryptocurrencies will be accepted. In the rapidly-growing emerging asset class of cryptocurrencies, there are new coins and tokens being “minted” daily in new initial coin offerings (ICO’s). While the idea of taking a nondiscriminatory approach to cryptocurrency acceptance is nice, surely it is not pragmatic for the Illinois Department of Revenue to have wallets for each individual cryptocurrency on the market and exchange accounts relevant for each currency.
Additionally, not all cryptocurrencies are available on exchanges yet. Some investors are able to acquire coins and tokens before any public listing in a pre-ICO sale, leaving the Department of Revenue with no reasonable method of exchange for the collected coins other than to either wait for their listing on a traditional exchange or test their luck listing them on a decentralized exchange (DEX).
Besides worrying about the liquidity of crypto assets, tax authorities also have to be sharp-eyed for the current value of the highly volatile cryptocurrencies. Though bitcoin has come a long way since its inception, the markets are quick to act in response to regulatory announcements and other big news. Most recently, the bitcoin markets are suffering a downturn after the release of a stern warning to cryptocurrency exchanges from the U.S Securities and Exchange Commission (SEC). Things can be difficult for the Department of Revenue if the market were to take a sharp downturn immediately after residents make their tax payment. However, the flip side is just as true as well. The consistent fluctuation in the price of bitcoin (BTC) and other cryptocurrencies means that tax authorities have the potential to see a quick appreciation in the price of whichever cryptocurrency was used as payment. If authorities are able to collect $5,000 worth of taxes and are able to trade them for $6,000 in return, then that’s not a bad deal for any parties involved.
These reasonable concerns are nothing new though, and Representative Zalewski is fully aware of that. According to the Chicago Reader, Zalewski has already stated that “We have plenty of work to do on the bill, that’s why it’s filed as a discussion topic. We’re at the spear tip of technology here.” With the bill still in its infancy, there are many questions to work through, but that’s why it’s being introduced in the first place. Make sure to keep an eye out for the latest updates in Illinois, Georgia, and Arizona.