Colorado Passes the Digital Token Tax Act

Colorado Looks to Spur Economic Development by Lessening Crypocurrency Restrictions

“The new bill, set to take effect in August, allows businesses and consumers to complete transactions with digital currency without meeting security registration requirements.”

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By Block Society

Colorado passed the Digital Token Act on March 6, 2019, a move that Colorado hopes will encourage economic development and make it easier for businesses to accept cryptocurrency payments. The legislation intends to allow Colorado to become “a hub for companies that are building new forms of decentralized ‘Web 3.0’ platforms and applications.”

 

 

The act also states that regulatory requirements can “outweigh the benefits to Colorado businesses using crypoeconomic systems that seek to raise growth capital and create decentralized internet platforms and applications by offering the sale or transfer of digital tokens that have a primarily consumptive purpose.”

Colorado’s goal was to strengthen consumer protections regarding ICOs while lifting some regularity restrictions on businesses and cryptocurrency platforms. 

 

Instead of having to register with the state securities commissions, Colorado businesses can more easily accept digital currency, Companies engaged in ICOs are exempted from state security registration if their digital asset is marketed as a transactional token and not a speculative investment. 

 

The legislation intends to allow Colorado to become “a hub for companies that are building new forms of decentralized ‘Web 3.0’ platforms and applications.”

Additionally, in order for ICOs to be exempted from registration, the token must either be immediately available for consumptive use, or must meet all of the following conditions:

 

·         be available within 180 days of purchase

·         the original buyer can’t transfer or sell the digital asset before receiving its consumptive value

·         the purchase is made with the sole intent to use the asset for a consumptive purpose and is not an investment.

The new law helps prevent futures trading and other speculative transactions related to ICOs.

 

Those who sell or accept digital assets are exempted from adhering to Colorado’s Broker-Dealer licensing laws if the person files a notice of intent with the Colorado Securities Commission, attests that the digital asset will be used for consumptive purposes and agrees to promptly stop selling or accepting digital assets that are sold for reasons other than consumptive use.

The bill defines “consumptive purpose,” as a “means to provide or receive goods, services, or content, including access to goods, services or content.”

Colorado businesses will now be able to accept cryptocurrency payments through decentralized platforms without having to meet state security registration requirements. The act does not exempt digital currency transactions from antifraud regulations or other consumer protections acts.

 

The Digital Token Tax Act demonstrates Colorado is welcoming cryptocurrency innovations by lowering certain regulatory requirements in a move that Colorado believes will improve development and technological innovation. 

 

Colorado Legislation. 6 March 2019. Digital Token Act. https://leg.colorado.gov/sites/default/files/2019a_023_signed.pdf.

 

 

The National Law Review. 1 March 2019. Colorado Digital Token Tax Act Exempts Certain Cryptocurrency Transactions from Colorado Securities Law. https://www.natlawreview.com/article/colorado-digital-token-act-exempts-certain-cryptocurrency-transactions-colorado

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