Vermont’s introduction of a proposed bill to tax cryptocurrency may be the first of its kind, but it undoubtedly won’t be the only state to address taxation of digital currency at the state level. On Jan. 3, 2018, Vermont State Senator Alison Clarkson introduced Senate Bill 269, proposing to regulate and promote digital currency and blockchain development in the state of Vermont.
The tax
Senate Bill 269 addresses the operation of “digital currency limited liability companies.” These companies may provide for their corporate governance be performed entirely by utilizing new technological infrastructures such as blockchain technology. The bill outlines the necessary procedures and regulatory compliance that the companies must follow, such as the designation of participants (nodes and miners) as members, managers, or both, specifies the fiduciary duties of core developers, and adopts rules concerning “hard forks” of digital currency, among other requirements.
Additionally, and a first for a state, the bill proposes a $.01 digital currency transaction tax for each unit of currency mined or otherwise create and each sale or other transfer of one or more units of currency. A digital currency limited liability company would also be exempt from taxes otherwise applicable under Title 32 of the state statutes, which includes the income tax and sales and use tax.
Digital currency studies
Senate Bill 269 calls for Vermont agencies to create research studies that highlight the various issues and risks surrounding the implementation of blockchain technology and corresponding regulatory issues. The studies are intended to culminate in a government led 'FinTech Summit' intended to explore legal and regulatory mechanisms to promote the adoption of financial technology in the state. The studies are to be conducted by various state agencies and include topics such as the following:
- Consumer protection and financial technology
- Regulatory technology
- Digital currency limited liability companies
- E-residency
- Personal identity and information trust companies
- Insurance and e-banking
- Autonomous agent corporations
- Blockchain technology
The E-Residency report calls for a study to be conducted on the 'e-residency' program established in Estonia. The study would explore how adoption of a comparable program or regulatory provision of Vermont law could be established. Estonia is considered the first country to offer a program where non-residents may establish an e-residency for certain services such as opening a bank account or establishing a business in the country.
Takeaways
While Senate Bill 269 is only a proposal, Vermont appears to be the first state to specifically target the taxation of certain digital currency activities. Noteworthy, Vermont enacted legislation in mid-2017 mandating studies on blockchain and its potential economic impact on the state. As states tackle with existing deficits and the response to federal tax reform, digital currency activities could be ripe for state regulation and taxation.
