Under New Crypto-friendly Laws, Virtual Currency Exempt from Taxes in Wyoming
Last Month the State of Wyoming made headlines for passing a series of revolutionary laws turning the state into one of the most cryptocurrency friendly jurisdictions. One of the laws, HB70 makes Wyoming the only state in the Union to define Tokens as a new type of asset, HB19 amended the state’s antagonistic money transmitter laws to exempt virtual currency, and finally SF111 exempts digital currencies from property taxes.
House Bill 19, Wyoming Money Transmitter Act
AN ACT relating to trade and commerce; amending the Wyoming Money Transmitter Act to provide an exemption for virtual currency
As used in this act: “Virtual currency” means any type of digital representation of value that:
(A) Is used as a medium of exchange, unit of account or store of value; and
(B) Is not recognized as legal tender by the United States government.
*Exemption applies only to virtual currency transmissions within the state of Wyoming.
House Bill 19 amended Wyoming’s money transmitter laws to exempt virtual currency. This move is a complete 180 after restrictive money transmitter laws ousted virtual currency exchanges in the entire state. Coinbase, arguably the biggest cryptocurrency exchange in the U.S. and the one complying with every state’s money transmitter laws announced two years ago it could no longer provide services in the State of Wyoming because of these laws.
“Coinbase is indefinitely suspending its business in Wyoming. . . .we understand that the Wyoming Division of Banking interprets the Wyoming Money Transmitter Act to require licensure of entities which offer hosted wallet services, and that as a condition of such licensure, licensees must maintain dedicated fiat currency reserves in amount equal to the aggregate face value of all funds held on behalf of customers. Although Coinbase securely maintains 100% of all customer funds, it is impractical, costly, and inefficient for us to establish a redundant reserve of fiat currency in equivalent value.”
The state saw several lobbying groups sprout in the defense of the new technology. Among these, the Wyoming Blockchain Coalition helped draft the new bills who’s co-founder, Caitlin Long, believes “one of the bills enables money transmitters to return to Wyoming.”
House Bill 70, Open Blockchain Token exemption
AN ACT relating to securities; providing that a person who develops, sells or facilitates the exchange of an open blockchain token is not subject to specified securities and money transmission laws; providing specified verification authority to the secretary of state and banking commissioner; making conforming amendments; and providing for an effective date.
The first of its kind, this law defines cryptocurrency as a new type of asset. The term “open blockchain token,” can be seen as Utility Tokens, those that offer goods or services, not sold as investment like an ICO. This means that within the State of Wyoming, this token type is not a commodity as defined by the CFTC, nor like a security as the SEC mandates, but rather an entirely new type of asset. This definition exempts these types of cryptocurrency from the state’s money transmitter laws. Developers or issuers of the token should take care not to market their utility token as investments, nor should they support development of a secondary market for the tokens.
House Bill 101, Electronic Corporate Records
AN ACT relating to the Wyoming Business Corporations Act; authorizing corporations to use electronic networks or databases for the creation or maintenance of corporate records; authorizing the use of a data address to identify a corporation’s shareholder; authorizing corporations to accept shareholder votes if signed by a network signature that corresponds to a data address; specifying requirements for use of electronic networks or databases; requiring the secretary of state to review its rules for consistency with this act; and providing for an effective date.
This bill addresses the core purpose of a distributed ledger technology, by providing the maintenance of corporate records of Wyoming entities thorough blockchain-based smart contracts. Very similar to Delaware’s Blockchian Initiative, sophisticated commercial transactions and records can autonomously update and share.
House Bill 126, Series Limited Liability Companies
AN ACT relating to limited liability companies; authorizing limited liability companies to establish series of members, managers, transferable interests or assets as specified; specifying powers; providing for limitations on liabilities; providing for management, termination and dissolution; authorizing distributions to members; imposing a requirement on foreign limited liability companies that establish series; requiring rulemaking; and providing for effective dates.
To stay competitive with the likes of Delaware, Wyoming updated its corporation laws to allow the formation of “series LLCs.” Traditionally employed by private equity firms, this technique to limit liability from subsidiary entities is now being applied in the blockchain field. By allowing LLCs to employ a compartmentalized series of members/managers, interests and assets can be transferred and distributed between members while mitigating security law risks.
Virtual Currency Exempt from Taxes in Wyoming
While the previous four bills signed into law stole the spot light last month, this month the final Wyoming bill, SF 111 will be more viable. Senate File 111 is the “Cryptocurrency Property Tax Exemption Bill.” Taxes are due in two weeks and the IRS has sent its friendly reminder that virtual currency is to be taxed federally as a property. Thompson Reuters reported two months ago that that “Less than 100 people out of the 250,000 individuals who have already filed federal taxes this year through company Credit Karma reported a cryptocurrency transaction to U.S. tax authorities, the company said on Tuesday.” Although the state of Wyoming has chosen not to tax cryptocurrency as a property, there is no avoiding federal taxes imposed by the IRS.
Senate File 111, Property Taxation Digital Currencies
AN ACT relating to property taxation; exempting virtual currencies from property taxation; and providing for an effective date.
Ensures that virtual currency in Wyoming is personal property and not subject to taxation under state laws (Federal laws imposed by the IRS still apply). This law facilitates Wyoming corporations to hold cryptocurrency as there is no individual income tax in the state. Ironically, such digital coins will be exempt from taxation as its physical coin counterparts. The entirety of the law reads thusly,
The following shall be exempt from property taxation:
(vi) Any of the following intangible items:
(A) Money and cash on hand including currency, gold, silver and other coin, bank drafts, certified checks, and cashier’s checks; and virtual currencies. As used in this subparagraph, “virtual currency” means any type of digital representation of value that:
(I) Is used as a medium of exchange, unit of account or store of value; and
(II) Is not recognized as legal tender
by the United States government.
Wyoming has not only positioned itself as a pioneering state for blockchain start-ups, it has also laid out a solid foundation for other states to emulate. House Majority Leader David Miller was assertive in his praise, “You talk about diversification, diversifying our economy, to me this is probably the best, real chance to do it, without being too disruptive in the taxation sector to Wyomingites.”
Felix Shipkevich is a principal of Shipkevich PLLC. His practice focuses on providing counsel to FinTech and financial services firms, including financial technology, payments and emerging digital currency space. He has spoken at national panels in the money transmitter space and payments industry. Mr. Shipkevich’s payments practice has brought him into contact with money transmitter registration requirements in all fifty U.S. States.
To read his full profile, click here.