New bill could allow Americans to buy coffee with crypto tax exemption

Thanks to a new bipartisan bill introduced in the US Senate yesterday by Senator Toomey (R-PA) and Senator Kyrsten Sinema (D-AZ), Americans may be able to buy coffee with crypto without triggering a taxable event. The Virtual Currency Tax Fairness Act provides a de minimis exemption for gains of less than $50 on in-person transactions and for in-person transactions under $50.

“While digital currencies have the potential to become a regular part of Americans’ everyday lives, our current tax code stands in the way,” said Senator Toomey. “The Virtual Currency Tax Fairness Act will allow Americans to use cryptocurrencies more easily as a daily payment method by exempting small personal transactions like buying a cup of coffee from tax.”

Removing the barrier of taxes can not only encourage those who hold cryptocurrency to use it more as a means of payment, but can also help those who may already be using it and are unaware of the potential tax consequences of very small purchases. “We’re protecting Arizonans from surprise taxes on everyday digital payments, so as the use of digital currencies increases, Arizonans can keep more of their own money in their pockets and continue to thrive,” said Senator Sinema.

According to current law, a taxable event occurs every time a digital asset is used. For example, if you used digital assets to buy a cup of coffee, the person will owe capital gains on the transaction if the digital asset increased in value – even if the asset only appreciated by a fraction of a penny.

In November 2021, the Pew Research Center noted that 16% of Americans had invested in, traded, or used cryptocurrency. “The use of virtual currencies for retail payments continues to grow in popularity, making it critical for Americans to understand their tax obligations,” said Kristin Smith, CEO of the Blockchain Association. “By providing an exemption for small everyday purchases, the Virtual Currency Tax Fairness Act eases the burden on consumers and opens up greater use of virtual currencies to more people. We are proud to support this bipartisan bill in the Senate.”

Various payment companies designed for merchant businesses to receive cryptocurrency are likely to benefit from this new type of law. “Cryptocurrency needs the same exemption for small, personal transactions that we have for foreign currency,” said Jerry Brito, CEO of Coin Center. “This will promote the use of crypto for retail payments, subscription services and micro-transactions. More importantly, it will promote the development of decentralized blockchain infrastructure in general because networks rely on small transaction fees that today give users compliance friction that arguably costs the economy more than the tax revenue that otherwise generated. We are very grateful to Senators Toomey and Sinema for introducing the Virtual Currency Tax Fairness Act which will continue to strengthen America’s leadership in cryptocurrency.”

The Crypto Council for Innovation, one of the newer industry groups made up of Paradigm, Coinbase, Fidelity and Square, also weighed in with support for the bill. “We applaud the bipartisan leadership of Senators Toomey and Sinema. Their legislation is forward-thinking and focused on the utility of this new technology,” said Sheila Warren, CEO of the Crypto Council for Innovation. “With 1 in 5 Americans holding or using crypto, greater regulatory clarity support the industry’s next stage of growth. We look forward to helping politicians with their work going forward.”

Companies seeking to give consumers the ability to use digital assets for payments to merchants are also likely to be in favor of such a bill. However, the latest president’s budget shows revenue from collecting taxes from cryptocurrency gains, which could prove to be a barrier to offering any kind of tax exemption.