Cryptocurrency still on hold as payment for fees, taxes in Florida

Those who need to pay money to the state will have to keep the blockchain at bay. 

Gov. Ron DeSantis had wanted Florida to be among the first states to take blockchain technology-based cryptocurrency for business tax payments, but legislative leaders decided to keep people’s virtual wallets in their pockets. The crypto market recently saw losses of the equivalent of more than $1 trillion. 

The governor publicly stated as recently as March he was open to allowing fee and tax payments using digital currency, a type of asset owned or traded by about 16% of Americans, according to Pew Research. He still supports the policy after the Legislature ignored his push to allow businesses to pay state fees using crypto through measures in the 2022-23 budget.

Since DeSantis’ push, the crypto market has plummeted, dropping Bitcoin to its lowest value since 2020 and reducing others’ value, like TerraUSD, by over 80%.

Bryan Griffin, DeSantis’ deputy press secretary, told City & State the administration still supports expanding the use of cryptocurrency and that lawmakers may act on DeSantis’ idea next year. Meantime, the governor did sign a bill last month that provides a foundation by defining “virtual currency” and making clear “that money transmission now includes the transmission of virtual currency,” according to the Office of Financial Regulation. 

Cryptocurrency “is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend,” Investopedia explains. “Many cryptocurrencies are decentralized networks based on blockchain technology – an (online) ledger enforced by a disparate network of computers. A defining feature … is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.”

Griffin says that the potential for volatility in the crypto market would be taken into account in the design of any crypto tax payment program: “Florida encourages cryptocurrency as a means of commerce and furthering Florida’s attractiveness to businesses and economic growth,” he says.

Colorado is set to become the only state in the U.S. to accept state resident tax payments using Bitcoin this summer. Some experts say Colorado’s policy could protect its revenue from crypto market volatility and serve as a stepping stone for similar policies across the country.

But critics argue accepting crypto for tax payments makes little policy sense and is instead being used as advertisement to attract crypto company investment to the Sunshine State. They point to MiamiCoin City Wallet.

Earlier coverage: ​​Cities that hyped crypto are now contending with the crash

As previously reported by Route Fifty, “it was valued at $24 million before a major industry crash in January and at $15 million before the May crash, has fallen to less than $7 million. While that hit did not affect city coffers, residents and others who purchased or mined MiamiCoin lost much of their investment.”

Florida Chief Financial Officer Jimmy Patronis is open to discussion about crypto policy expansion in the state and supports evaluating the actions of other states involving financial tech, spokesman Devin Galetta says.

“The CFO embraces innovation and has been supportive of fintech (financial technology) industries expansion to Florida,” Galetta says. “Our office continues to monitor fintech developments and is always looking for ways to produce more return for Florida’s retirement system and taxpayers.”

The downside of crypto could hit states hard, critics warn

One side of the discussion surrounding crypto policy expansion argues such changes could hurt states. Market fluctuations happen fast enough that states could lose value if they hold onto cryptocurrency for even a few hours after collecting it, says Todd Phillips, director of financial regulation and corporate governance for the progressive Center for American Progress.

“That fluctuation can happen so quickly is in and of itself problematic,” Phillips says. “We don't want our states to be affected by cryptocurrency market fluctuations as they try to do their budgeting. That's just a bad way to run a government.”

However, Colorado’s process looks to sidestep that by limiting the time the state holds on to the cryptocurrency itself. Colorado Gov. Jared Polis said on CNBC’s Crypto World in February that the state’s process of accepting crypto for tax or fee payments would not involve holding crypto for an extended period of time, but immediately converting it into U.S. dollars using an intermediary. 

"It's important that people know from a state perspective, we cannot be in the business of having exposure to a market where securities, including cryptocurrencies, fluctuate," Polis said. He said the process for using the intermediary is not unlike other methods of payment, “just like accepting a credit card, but with a much lower transaction cost than a credit card.”

Phillips says Colorado’s policy not only looks to avoid market fluctuations, but also allows the state to continue conducting its business only in U.S. dollars. But he believes Colorado could be encouraging more businesses to conduct transactions using crypto with the policy, something he says could complicate commerce if it proliferates. 

“If one person takes dollars and another person takes Bitcoin and a third person takes Ethereum and a fourth person takes Dogecoin, those people just can't transact easily. There will be friction on how people can buy and sell goods and services,” he says. “It's important for people to have one currency that has a set value. One dollar is worth one dollar.”

Galetta says the CFO’s office has been monitoring policies surrounding cryptocurrency and how they are being put into practice in other states. While the CFO’s office has noticed challenges surrounding collecting taxes and fees with cryptocurrencies, it supports more discussion on the tax policy as well as other crypto policy, like allowing the State Board of Administration of Florida, which manages the Florida Retirement System Trust Fund, to expand investment assets to include cryptocurrency.

“This could give Florida’s fund managers yet another tool in their toolkit to satisfy their fiduciary responsibilities,” Galetta says. And Phillips believes DeSantis’ reasons for publicly saying he supports accepting crypto for tax payments goes beyond just the policy itself. “This is just an advertisement to show that the state is open for business for the crypto industry,” he says.

Regulating cryptocurrency: Policy or business advertisement?

Some Florida politicians have publicly discussed the game of reducing crypto regulation and adding more crypto accessibility to attract industry members and talent. Miami Mayor Francis Suarez says in a 2021 interview with Forbes that his jurisdiction’s actions about cryptocurrency, including a resolution aimed at eventually allowing residents to pay property taxes with crypto, are meant to boost Miami’s competitiveness in the industry.

“We're doing that because we're looking at states like Wyoming and making sure that we have the most progressive crypto laws. … We want to make sure that we believe that if all things are equal, we win,” Suarez has said. “We want to make sure that nobody has an advantage over us based on laws that are easily changeable.”

Phillips, however, says supporting policies that boost people’s involvement with cryptocurrency is potentially harmful and not something politicians on either side of the aisle should be doing: “Cryptocurrencies right now are very unregulated and are very risky. It’s problematic to have our elected officials basically advertising that people should invest in these really risky speculative assets.”