This week, Ohio became the first state in the US to allow businesses to pay taxes in bitcoin—well, sort of.
Although crypto enthusiasts celebrated the news as a sign of government adoption, the reality of the situation is underwhelming, and potentially even worrisome. Ohio’s new payment option seems like a solution in search of a problem and one driven less by a desire to serve taxpayers, and more about grabbing some of the sizzle that comes with all things blockchain and crypto.
Ohio won’t actually accept bitcoin.
For starters, the Buckeye state won’t actually collect bitcoin. Instead, taxpayers will send their digital currency to BitPay, a payments processor in Atlanta, which will convert the bitcoin into dollars for the state treasurer’s office. “At no point will the Treasurer’s office hold cryptocurrency,” reads Ohio’s crypto tax payment portal, which launched on Monday (Nov. 26).
“This is not actual adoption,” wrote one commenter on the cryptocurrency subreddit. “Ohio itself does not see or touch or even know about bitcoins.” Others raised questions, like whether selling bitcoin to pay taxes is a taxable event. (Under IRS guidance, it seems to be.)
BitPay’s transaction fees exceed conventional payment options.
When asked why a business would choose to pay its taxes in bitcoin, Ohio treasurer, Josh Mandel, told Quartz the 1% transaction fee charged by BitPay is less than the 2.5% fee Ohio’s taxpayers face when using a credit card. Superficially, that’s true.
However, comparing tax payments made using bitcoin and tax payments using credit—the ability to take on debt—is a flawed approach. Why? Because bitcoin is an asset. So, the appropriate comparison is between tax payments using bitcoin through BitPay (which carries a 1% transaction fee) and tax payments using existing assets (which can be made for free by check or electronic transfer). Simply put, the regular option is cheaper.
Even if an Ohio business has bitcoin that it must use to pay taxes, then that business should liquidate its bitcoin independently and use one of the free payment methods to avoid unnecessary transaction fees.
Tax scams abound.
There are other reasons to be concerned. In Canada, fraudsters have stolen hundreds of thousands of dollars through bitcoin tax collection scams, so Ohio’s decision to actually accept bitcoin for taxes—even indirectly—could create confusion and put its taxpayers at risk of being targeted by con artists.
Surprisingly, Ari Lewis, cryptocurrency advisor to the Ohio Treasurer’s Office, told Quartz he wasn’t familiar with the bitcoin tax collection scams that have plagued the Canadian Revenue Agency. “I don’t see that as a cryptocurrency-specific issue,” Lewis said, suggesting such scams could be perpetrated through other payments processors, too. (The key difference though is that bitcoin transactions are irreversible.)
Who actually wants to do this?
When pressed for details on how many businesses want to pay taxes in bitcoin, the Ohio Treasurer’s Office said that information wouldn’t be available for several months. While supporting tax payment options is a laudable goal, the method by which the Ohio Treasurer’s Office is accepting bitcoin just doesn’t make sense. It’s a more convoluted, expensive, potentially unsafe, and wholly unnecessary process, which may not be desirable in the first place.
Ohio wants to paint itself as a center of innovation, but its early foray in cryptocurrency—while well-intentioned—is misguided.
A version of this essay first appeared in Private Key, Quartz’s premium newsletter about the chaotic world of crypto. Sign up for a free two-week trial here.