Assigned to FIN FOR
COMMITTEE
Assigned to FIN FOR
COMMITTEE
ARIZONA STATE SENATE
Fifty-Third Legislature, Second Regular Session
Purpose
Adds, beginning in Tax Year (TY) 2019, new state individual and corporate income tax additions and subtractions for exchanges of virtual currency for other currency.
Background
For individual taxpayers, Arizona gross income is an individual’s federal adjusted gross income for the relevant taxable year, computed pursuant to the Internal Revenue Code. For corporate taxpayers, Arizona gross income is a corporation’s federal taxable income for the relevant taxable year. For both individual and corporate tax payers, Arizona adjusted gross income is Arizona gross income, modified by various additions and subtractions outlined in statute (A.R.S. §§ 43-1001 and 43-1101). Examples of additions to and subtractions from Arizona gross income allowed for individuals and corporations include: 1) interest income from government bonds; and 2) capital losses derived from the exchange of one kind of legal tender for another (A.R.S. §§ 43‑1021; 43-1022; 43-1121 and 43-1122).
According to the Internal Revenue Service, virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account or a store of value, which may be used as payment for goods or services or held for investment purposes. Virtual currency that has equivalent value in real currency or acts as a substitute for real currency is referred to as convertible virtual currency. Bitcoin is an example of convertible virtual currency, which may be digitally traded between users or purchased for, or exchanged into, U.S. dollars and other real or virtual currencies (Notice 2014-21).
According to the Arizona Department of Revenue, the fiscal impact to the state General Fund associated with this legislation cannot be determined at this time due to a lack of data needed to estimate virtual currency exchange activity and the resulting capital gains or losses.
Provisions
2. Allows, beginning in TY 2019, an individual and corporate income tax subtraction for any net capital gains derived from the exchange of virtual currency for other currency.
3. Defines virtual currency as a digital representation of value that functions as one or more of the following:
a) a medium of exchange;
b) a unit of account; or
c) a store of value.
4. Becomes effective on the general effective date.
Prepared by Senate Research
January 22, 2018
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