Colorado Now Accepts Crypto for State Tax Payments

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The Department of Revenue has added cryptocurrency as a payment type, allowing residents to pay individual and business tax through PayPal.

Colorado taxpayers can pay any state taxes using cryptocurrency as of the start of September, the Colorado Department of Revenue (DOR) said.

DOR said residents will be able to pay individual and business income taxes, as well as sales and use tax, withholding tax, severance tax and excise fuel tax via PayPal’s Cryptocurrencies Hub.

Taxpayers must have the entire value of their invoice in a single cryptocurrency to make the payment and will be charged a service fee of $1 plus 1.83% of the payment amount. Transfers of funds are expected to take between three and five business days.

Gov. Jared Polis unveiled the plans to start accepting tax payments via cryptocurrency earlier this year, and said the state would have a “transactional layer” in place to ensure payments are protected from cryptocurrency’s volatility.

In an email, Miles Fuller, head of government solutions at crypto tax software company TaxBit, said Colorado’s initiative is a “big first step” in changing state and federal rules around what states can accept as legal tender for tax payments or to hold as assets. He said moves toward paying taxes by crypto also “creates more flexibility for those who are unbanked or have limited access to banking.”

The state’s efforts to embrace cryptocurrency could have a knock-on effect on other sectors of its economy, Fuller said.

“Colorado was the first state to legalize recreational cannabis, an industry that has since suffered from a lack of access to traditional banking due to federal law,” he said. “In turn, tax payments in the cannabis industry are often made in cash. This policy change alleviates the security risks and costs associated with cash payments by creating an electronic method of payment for those with limited or no access to traditional banking."

Other states have been slow to allow residents to pay state taxes  using cryptocurrency. A bill in Utah signed in March by Gov. Spencer Cox directed the state’s Division of Finance to allow collecting taxes via cryptocurrency by Jan. 1, 2023. Others, including Florida Gov. Ron DeSantis, have expressed support for similar initiatives but are yet to make substantive progress.

Meanwhile, other state-level efforts around cryptocurrency have been mired in controversy. Ohio launched a tax payment center for cryptocurrency in 2018, but the program was rescinded the following year after then-Attorney General Dave Yost issued an opinion that found that the state treasurer lacked the legal authority to operate the program.

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