In a boon for Bitcoin, the state of New York has declared that Bitcoin will be treated as intangible property. This is according to a technical memorandum issued by the state’s department of taxation and finance. What this means is that sales that are done in Bitcoin or any other freely convertible virtual currency will not attract sales tax. In so doing New York has led the way, and shone a torch bigger than the one on Staten Island.
In the last 12 months, New York has somewhat fumbled over how to treat Bitcoin. In July 2014, superintendent Benjamin Lawsky of the Department of Financial Services proposed regulations that included what was to be called the Bitlicense. The Bitlicense would have required crypto companies to track their customers’ Bitcoin addresses, as well as the people who sent them money.
After some uproar, it would appear that cooler heads prevailed over the state’s Department of Financial Services, and a window period was given in which interested parties could forward their recommendations on the proposed regulation of Bitcoin in New York. That window closed at the end of October 2014.
The technical memo issued by the state’s taxation department will require New York businesses that accept Bitcoin to register for sales tax purposes. It also requires them to record the value of the Bitcoin transaction, converted to US dollars. The memo further clarifies that sales tax would only be charged on goods and services that are subject to sales tax.
With this latest move by the taxation department, it would appear that the architecture of Bitcoin regulation in the United States is slowly but surely taking shape. Bitcoin like any other type of virtual currency has a dual nature. It can be used as a medium of exchange and a store of value, and it can also be used viewed as an asset. This nature of Bitcoin makes its impact on the nation much more far-reaching. Multiple agencies at both federal and state level will eventually introduce some form of guidelines for virtual currencies like Bitcoin, including those that regulate securities and commodity trading. For example, in early October the Commodities and Futures Trading Commission held a panel to discuss the rules that would govern the trading of Bitcoin futures.
The growing consensus even in government is that Bitcoin is a good thing. What no one seems to agree on is how to go about regulating it. Some states like California seem to have adopted a more laissez-faire approach. In mid-2014, California Assembly member Roger Dickinson authored Assembly Bill 129 or AB-129 that deems digital currencies as ‘lawful money.’ The bill passed in the California Assembly and later on in its Senate and is now awaiting the final signature of approval from Governor Jerry Brown.
Also read AB 129 is not California Law Yet …
California is home to the Silicon Valley, where a sizable minority of the Bitcoin community in the United States are to be found. The sponsor of AB-129 claims that his approach in authoring the bill is a ‘neutral’ one. It was not his intention to sponsor a bill that would protect the growth of virtual currencies. His goal was to create a bill that would respond to the exponential growth of digital payments including coupons and other forms of alternative currency.
Ultimately, however, Mr. Dickinson said that it was up to the federal government to provide regulation on the use of virtual currency. It would seem that Congress is now taking steps toward that end. In November 2014, Congressman Stockman from Texas introduced a bill known as the HR 5777, in the House of Representatives that would institute a five-year moratorium on the regulation of Bitcoin so as to enable its growth.
Regulators are still struggling on how to regulate virtual currency, a situation that seems also to be replicating itself around the world. Virtual currency is still evolving. The final shape or form has not fully emerged and trying to impose regulation on cryptocurrency at present is akin to giving your morning suit to your two-year-old son.
A much more useful endeavor would involve the setting up of legislation that would create broad principles, rather than heavy-handed regulations. The debate should, therefore, focus on defining what those broad principles are or should be. These broad principles should then act as the scaffolding that would help the development of the Bitcoin ecosystem.
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