Colorado’s Cryptocurrency Tax Experiment: Innovation Meets Hesitation

CO: On September 1, 2022, the Colorado Department of Revenue became one of the first state agencies in the U.S. to accept cryptocurrency for state tax payments. From income tax to sales and use tax, taxpayers could pay their dues with digital currency. This futuristic leap positioned Colorado as a bold innovator in public finance.

Despite the groundbreaking launch, adoption has been underwhelming:

• Just 78 cryptocurrency payments have been made through the end of 2024:
  • 8 in 2022
  • 22 in 2023
  • 48 in 2024
• The total amount collected via crypto? A mere $57,211.

To put that into perspective, Colorado collected $11 billion in individual income tax revenue in fiscal year 2022–23 alone. Crypto payments account for approximately 0.0005% of total tax collections — a microscopic slice of the state’s revenue pie.

While Colorado made headlines for its crypto-friendly stance, several barriers stand in the way of broader adoption:

• Payment Limitations: Taxpayers must use PayPal’s Cryptocurrencies Hub; only personal accounts are eligible. Payments must be initiated through PayPal’s mobile app, and external wallets must be routed through PayPal.
• Business Exclusion: PayPal Business accounts can’t pay taxes using crypto.
• Fees: Crypto payments come with a service charge — $1 plus 1.83% of the total — which may be more than taxpayers are willing to pay.
• Volatility & Complexity: Some may be wary of crypto’s price fluctuations, while others find the process inconvenient or unfamiliar.

Unlike Ohio, which ended its short-lived crypto tax pilot in 2019, Colorado remains committed to the program. Governor Jared Polis, a vocal supporter of innovation in government, emphasized early on that the state had no intention of holding crypto, instead relying on third parties to convert it to U.S. dollars immediately. This protects the state from volatility while still offering a tech-forward option to the public.

Polis also hinted at broader ambitions — such as accepting crypto for driver’s licenses, hunting and fishing licenses, and more — though these plans have yet to materialize.

Colorado’s experiment is part of a broader trend. Several states are exploring blockchain and digital assets:

• Florida, Hawaii, and Utah have state blockchain task forces.
• Arizona, California, and New York have considered allowing crypto for fines, fees, and government payments.
• Miami and New York City launched local cryptocurrencies, though both saw limited use before their supporting exchange suspended trading in 2023.

At the federal level, both recent administrations have taken an interest:

• In March 2025, President Trump announced plans for a strategic bitcoin reserve and national digital asset stockpile.
• In 2022, President Biden issued an executive order calling for responsible innovation in digital assets, focusing on consumer protection, financial stability, and climate impact.

Colorado’s cryptocurrency tax program may not be popular — yet — but it’s a symbolic milestone in the evolution of government finance. It shows that state agencies can be proactive, experimental, and even risk-taking in pursuing modernization.

Whether other states will follow — and taxpayers will eventually come around — remains to be seen. However, one thing is clear: Colorado’s crypto curiosity is helping shape the future of tax administration in the digital age.

About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts specializes in sales/use tax refund recovery and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At Davis Davis & Harmon, LLC, we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.