- Colorado has accepted just $57,000 in cryptocurrency tax payments since launching the option in September 2022
- This figure represents a mere 0.0005% of the state’s $11 billion in income tax collections over the same period
- Despite the initiative, only 72 crypto tax payments have been processed, indicating minimal adoption among taxpayers
Since introducing the option to pay taxes with cryptocurrency in September 2022, Colorado has seen minimal uptake, with only $57,000 collected through such payments, equating to just 0.0005% of the state’s total income tax revenue. The program, which utilizes PayPal’s Cryptocurrencies Hub to convert digital assets into U.S. dollars, has processed only 72 transactions to date. This low participation rate highlights the limited appeal of using cryptocurrency for tax obligations among Colorado residents.
Trailblazing Doesn’t Equal Popularity
In September 2022, Colorado became the first U.S. state to accept cryptocurrency for tax payments, aiming to position itself at the forefront of digital innovation. However, the initiative has seen minimal engagement from taxpayers. According to data obtained by Colorado Newsline, only 72 crypto tax payments have been made since the program’s inception, totaling approximately $57,000—a fraction of the state’s $11 billion in income tax collections during the same period.
The state’s approach involves using PayPal’s Cryptocurrencies Hub to facilitate these transactions. Taxpayers’ digital assets are converted into U.S. dollars at the point of payment, ensuring the state receives funds in its standard currency. Elizabeth Kosar, director of communications for the Colorado Department of Revenue, stated, “Colorado was the first state to innovate and accept cryptocurrency as payment for state taxes under the leadership of Governor Jared Polis.”
Factors Contributing to Low Participation
Several factors may explain the low adoption rate of crypto tax payments in Colorado. Firstly, the process incurs additional costs for taxpayers, including a $1 service fee plus 1.83% of the payment amount. Furthermore, using cryptocurrency for tax payments can trigger taxable events, potentially leading to capital gains liabilities.
As Andrew Appleby, a professor of tax law at Stetson University, noted, “When a taxpayer uses cryptocurrency to pay a tax liability, that transaction will generally constitute a disposition of an intangible asset, which itself creates a new taxable transaction.” Additionally, many cryptocurrency holders view their assets as long-term investments rather than mediums for everyday transactions. Lou Kerner, founder of Web3 community CryptoMondays, remarked, “As Michael Saylor says, the one rule of Bitcoin is to NEVER sell (or spend) your Bitcoin.”
Low Uptake Hasn’t Dissuaded Other States
Despite the tepid response, Colorado’s initiative has sparked interest in other states. Utah has implemented a similar program, though it has yet to process any crypto tax payments. Cities like Detroit are also exploring the option, planning to accept digital asset payments for taxes using PayPal’s conversion service.
However, experts remain skeptical about widespread adoption, suggesting that unless transaction costs decrease and regulatory clarity improves, cryptocurrency is unlikely to become a mainstream method for tax payments.
