Rhode Island has proposed a bill that aims to eliminate the taxes on small Bitcoin payments and transfers of both individuals and businesses.
Following this announcement, the new bill was introduced by Rhode Island, and it proposes the initiative of exempting small Bitcoin transactions from state income tax. Senate Bill 2021 (or S 2021) aims to allow individuals and businesses to sell or exchange up to USD 5,000 in Bitcoin per month, or USD 20,000 per year, without state tax liability being applied to them.
In addition, the bill, effective from January 1, 2027, through January 1, 2028, also aims to focus on the initiative of simplifying tax obligations for small-scale crypto trades, while encouraging compliance through self-certification, with guidelines for record-keeping and valuation as well.
Exploring new ways to securely accommodate Bitcoin and other cryptocurrencies in tax systems
According to the announcement, the bill defines Bitcoin as a digital, decentralised currency that is based on blockchain technology and is expected to apply the exemption to residents and businesses within Rhode Island. At the same time, the tax exemption would not count toward taxable income if Bitcoin transactions stay below the monthly or annual limits, as the taxpayers would only need to certify their eligibility annually on their state tax returns, making compliance simpler and more effective.
The exemption will be evaluated after one year based on its fiscal and economic impact, as the Rhode Island General Assembly will be enabled to extend or amend the exemption after reviewing its effectiveness. This provision aligns with the state’s efforts to ensure that digital currencies are treated similarly to traditional money in everyday transactions and payments, as the proposed exemption is set to not apply to speculative investments but rather focuses on routine Bitcoin use for small transactions.
Under the proposed bill, taxpayers are expected to need to maintain reasonable records to verify their compliance with the exemption. However, these records are set to only be required if the state conducts an audit, while Rhode Island’s Department of Business Regulation aims to provide clear guidance on how to track Bitcoin transactions and determine their market value. In addition, the department will base its guidance on publicly available Bitcoin price indices, which will further optimise the manner in which individuals and businesses ensure accurate valuation during transactions. The intention is to develop a clear and secure framework for taxpayers, while also focusing on the process of minimising administrative burdens for both taxpayers and the state.
The bill kicked off on January 9 and is currently sitting in the Senate Finance Committee for further review.
