No tax on crypto purchases – Texas goes big on digital assets

Government reports are usually not stimulating, so expectations may have been set low for something created by a bill with the unimaginative title “Relating to the Establishment of a Task Force on Blockchain Matters Concerning This State.” The Texas bill called for the development of “a master plan for expanding the blockchain industry in this state and recommending policies and state investments related to blockchain technology.”

Government terminology aside, Carla Reyes, assistant professor of law at the SMU Dedman School of Law, chaired the task force and delivered the goods with far-reaching recommendations. The report was presented to the legislature in November, and it contained exciting and transformative ideas for digital assets.

If the recommendations are implemented this legislative session, Texans will experience the benefits of a state leading the way in blockchain technology and cryptocurrency. The Texas legislature meets only in odd-numbered years, so elected officials must move quickly before the opportunity to take the lead is lost.

Sales tax holiday

Payments made in cryptocurrency at the point of sale will receive a two-year retail sales tax holiday. Saving money when shopping is universally welcomed, and such a move would encourage both merchants and consumers to investigate virtual currency and set up the necessary technology.

Forward-thinking Texas companies aren’t waiting for potential sales tax savings, moving forward today. Bitcoin and other cryptocurrencies have been accepted by the Houston Texans NFL football team for single-game box suite payments since August 2022. The Texans don’t necessarily hold the digital assets, however, and are working with a financial technology partner to instantly exchange cryptocurrency payments for dollars .

If Texas passes the sales tax holiday, perhaps companies will be encouraged to hold onto the cryptocurrency and use it for their own purchasing needs. This could be the jumpstart cryptocurrency needs to become an accepted payment method.

Bitcoin as a state investment in Texas

Continuing the theme of integrating bitcoin with the state’s payments activity, the task force recommended allowing the state of Texas to invest directly in bitcoin. Allowing Texas to keep bitcoin on its balance sheet is innovative, and if the government were to use that bitcoin for payments, it would likely continue to spur the development of digital asset infrastructure in the state.

Bitcoin mining by the government

The City of Fort Worth Information Technology Department received three donated Ant Miner S9 bitcoin mining rigs in 2022 and the city conducted a pilot project. The effort was powerful enough that the three machines were replaced throughout the year with more energy-efficient and powerful Ant Miner S19 units. Carlo Capua, the city’s head of strategy and innovation, advised the city to continue mining at the city level. Capua noted that the pilot project was not an investment or day trading of bitcoin, but an opportunity to study the implications and possibilities of mining. Perhaps it was from these efforts that the task force learned more about potential benefits for bitcoin mining and the energy sector.

Bitcoin Mining Tax Incentives

The recommendations include a tax break on previously flared natural gas that would be used to mine bitcoin and a tax incentive on electricity sales for large flexible loads, such as bitcoin miners.

The final tax reduction supports an environmentally friendly transition from gas flaring to consuming gas on site in a generator. This win-win proposal shifts the tax incentives from flaring gas to consuming gas when that gas can be used on-site, and will bring jobs and economic activity to rural parts of Texas.

The tax incentives on electricity are intended to be part of the solution for establishing a strong and resilient network. The proposal calls for the miners to work with the Texas grid operator, ERCOT, under a controllable or interruptible load strategy.

Blockchain education

The Texas Work Group also recommended developing a workforce program that would prepare students to provide value to the growing bitcoin mining ecosystem by learning technical skills in networking, hardware, software, electrical components, and heating and cooling requirements.

Texas State Technical College has taken up the workforce program and is eyeing its first graduating class in Q1 of 2023. The University of Texas A&M has also taken up the mantle to offer a course in the spring semester of 2023 called “The Bitcoin Protocol.” A&M is more geared towards programming than mining.

The future of Texas