Try making a list of the things that the cryptocurrency known as bitcoin can be used for, and a few uses may spring to mind: some merchants accept it as payment, some investors trade it and, sometimes, bitcoin is used for cyber crime.
Here’s one more thing to add to that list: this tax season, businesses in Ohio have the option of paying their taxes with it.
But most businesses don’t operate in bitcoin. So, why is Ohio offering a bitcoin option? The answer starts with the technology known as “blockchain” and a car dealership magnate from Northeast Ohio who wants to see Cleveland become a hub for the technology.
Blockchain is the digital record-keeping technology that makes cryptocurrencies like bitcoin possible. But the technology, which allows for the creation of what are essentially decentralized digital ledgers, can be used for other things besides cryptocurrency. Some startups and large businesses — in industries such as health care, real estate, and finance — are currently experimenting with ways to use blockchain in transactions and record-keeping.
Enter Bernie Moreno, president of the Bernie Moreno Companies. For the past year, Moreno has been an evangelist for Blockland, a Cleveland-based initiative that has brought together leaders from the city’s business, government and academic communities, with the aim of making Cleveland a destination for blockchain-based businesses.
Moreno has invested in multiple blockchain startups. Although one of those companies, called Votem, recently struggled with layoffs, Moreno recently sold some of his car dealership franchises in order to focus on another blockchain venture, Ownum.
In a promotional video for Blockland, Moreno said the goal was to make Cleveland “relevant” in the blockchain space, especially for business and government applications, “so that, at the end of the day, companies move here and hire people.”
“It’s about jobs, jobs, jobs, jobs,” Moreno said. To draw attention to the effort, Moreno helped organize a blockchain conference in Cleveland this past December.
Among the attendees was Josh Mandel, a former Ohio state treasurer, who signed on to help in the blockchain-branding effort by starting a website called OhioCrypto, where companies can sign up to pay their business taxes with bitcoin.
“We’re trying to do our small part to … think creatively about how technology can make taxpayers’ lives easier,” Mandel said. According to the Office of the Ohio Treasurer, businesses that pay taxes with bitcoin incur a 1 percent fee. That’s cheaper than paying with a credit card, which comes with a 2.5 percent fee, but more expensive than using a regular check, which is free.
One company that does businesses in the state jumped right in. “We have bitcoin to spend,” said Jonathan Johnson, who is on the board of directors for the home furnishings company Overstock, and who describes himself as a cryptocurrency “believer.” He is also president of a blockchain-focused venture capital fund owned by Overstock, Medici Ventures.
In 2014, Overstock started allowing customers to pay with bitcoin and other cryptocurrencies. Since then, according to a company spokesperson, it has collected more than $13 million worth of cryptocurrency payments. Johnson said that about half of what Overstock gets in bitcoin, it converts to U.S. dollars; the rest is kept in a “digital wallet.”
Utah-based Overstock, which pays a quarterly commercial activity tax in Ohio, was one of the first businesses to take advantage of OhioCrypto. "I think we paid a $35,000 tax bill,” Johnson said. “It was just a tad over 10 bitcoin."
It’s worth noting that the treasurer’s office doesn’t have a bitcoin account. When a business pays in bitcoin, that payment is routed through an Atlanta-based company called BitPay, which converts the bitcoin into U.S. dollars, which then get sent to the tax collector.
Still, a state government's acceptance of bitcoin as a method of payment is a significant development in the cryptocurrency space, said Tobey Scharding, a visiting assistant professor of business ethics at Rutgers University. Scharding points out that cryptocurrency was founded, in part, as a way to conduct transactions free from government control. But now? “Here’s Ohio stepping in and saying, ‘Hey, you can actually pay your taxes in bitcoins,'" she said.
Last year, according to the National Conference of State Legislatures, lawmakers in other states (such as Illinois and Georgia) proposed legislation that would allow for cryptocurrency tax payments, although those bills didn’t pass.
Scharding said that OhioCrypto gave cryptocurrency a further nudge into the mainstream. Late last month, however, the Ohio treasurer’s office said fewer than 10 companies had used the option, and that it wasn't sure whether the program would continue long-term.
“I think the best compliment I can give is not to say how much your programs have taught me (a ton), but how much Marketplace has motivated me to go out and teach myself.” – Michael in Arlington, VABEFORE YOU GO