Cryptocurrency, also known as Bitcoin, is on the rise and has digital currency enthusiasts seeking tax incentives from their state capitals. Crypto mining is a competitive process that uses the proof-of-work (PoW) method to verify bitcoin and add new transactions to the blockchain, which introduces new digital tokens into the circulation. Tax laws for cryptocurrency were not at the top of state legislators list, but the increasing amount of media recognition it has gotten lately has more states making incentive offers.  

State Legislation 

In 2021, a total of 33 states had favoring cryptocurrency infrastructure bills with 17 enacted new laws. Due to China’s cryptocurrency ban last year, analysts are predicting that legislation competition will intensify in Arizona, Arkansas, Georgia, Minnesota, Nebraska, North Carolina, Oklahoma, Tennessee and Texas. All of these states have high hash rates (“the volume of computational power dedicated to mining new bitcoins”), incentives, cheap energy and laws reducing regulatory and operational uncertainties. These advantages allow states to host data centers that will demand large amounts of energy. 

Kentucky 

In March 2021, Governor Andy Beshear signed two incentive bills into law, House Bill 230 and Senate Bill 255. House Bill 230 exempts electricity used in cryptocurrency mining from the 6% state sales tax and 3% utilities gross receipts license tax. Senate Bill 255 offers a sales tax exemption for cryptocurrency mining on equipment and material added to existing industrial facilities. 

Wyoming 

In April 2021, Governor Mark Gordon signed House Bill 189 into law which exempted the use of natural gas for cryptocurrency mining from taxation.  

Texas 

According to Fortune, Texas is on its way to be the world capital for bitcoin mining in two years. Texas is already very popular for mining due to plenty of cheap energy from carbon based and renewable resources. The state already has laws that exempt data centers from sales tax for up to 15 years. These data centers, which include mining operations, can claim an exemption on purchases of electricity, generators, servers, and software from the state’s 6.25% sales tax. 

Georgia and Illinois 

These two states are the latest to introduce bills that will provide tax incentives for cryptocurrency mining. Georgia House Bill 1342 plans to give tax breaks for energy use to bitcoin miners. The bill is looking to amend the state’s current tax code to exempt the sale or use of electricity. If passed, Illinois Senate Bill 3643  will include crypto mining centers over a 60-month period as “qualifying Illinois Data Center” to amend the Civil Administrative Code of Illinois. 

Mining Moratorium 

While we are seeing many states proposing tax incentives, New York is taking a different approach by proposing a moratorium on mining. If signed into law, Bill A7389 would impose a three- year moratorium on mining in the state of New York.  

If you have any questions on tax laws in your state contact Jason Skrinak, CPA.