Lawmaker Argues That Stablecoins Shouldn’t Be Excluded From New York’s Cryptocurrency Tax.

According to New York State Assemblymember Phil Steck, the proposed tax on crypto transactions will remain unchanged, without exemptions for stablecoins intended for everyday transactions, he told Decrypt. 

“There shouldn’t be any tax exemptions for crypto purchased as currency,” he stated on Tuesday. “I don’t envision crypto replacing dollars in daily transactions.”

Steck projected that a 0.2% tax on crypto transactions could yield $158 million per year, which could finance programs in schools addressing substance abuse issues in upstate New York.

“We believed this approach could generate the necessary funds for a statewide program,” he explained, pointing out budget challenges faced by the state’s Office of Alcoholism and Substance Abuse Services, which primarily assists communities in New York City.

Advocates for cryptocurrency should endorse what seems to be a straightforward method of generating funds for those in need; Steck believes this would demonstrate their commitment to positively impacting the community.

While cryptocurrencies vary, Steck remarked that they are largely speculative and function similarly to a form of entertainment. He noted that he gladly pays a 4% sales tax on Mets tickets when he goes to watch baseball.

If passed, Steck’s bill would take effect immediately, coinciding with expectations that new stablecoin legislation will foster increased competition in the $280 billion market, involving companies such as Bank of America and Citigroup, following the approval of the GENIUS Act last month. However, concerns have been raised that this legislation could penalize consumers for moving funds between their own accounts without generating profit, akin to transfers made between checking and savings accounts.

Stablecoins, typically pegged to the U.S. dollar and collateralized by a combination of cash and U.S. Treasuries, have previously been likened to poker chips due to their primary use by crypto traders for switching out of more volatile assets.

While Steck’s bill could provide significant benefits to upstate, its implications for the financial epicenter remain uncertain with a 0.2% excise tax.

Steck mentioned that his proposal does not include exemptions for high-frequency traders, who execute numerous transactions within seconds, leveraging intricate algorithms to exploit minor market variations.

“I view taxing high-frequency trading as very beneficial, as [many economists] do not consider it to be productive economic activity,” he asserted. “It’s not for investment; rather, it resembles gambling.”

Steck has similarly advocated for reinstating a tax on stock transfers in New York. Previously, the state imposed a 5-cent fee on sales exceeding $20 from 1905 to 1981.

It is possible that Steck’s revenue projection of $158 million may be an underestimate. His team attempted to acquire data regarding crypto transaction volumes in New York from the state’s Department of Financial Services, but a bill memo shared with Decrypt indicates that these attempts were unsuccessful.

According to the bill’s wording, crypto users would incur taxes when transferring funds between their own accounts, a scenario that federal tax law does not consider significant, as noted by Nick Slettengren, the co-founder and CEO of Count on Sheep, a tax preparation service, when speaking to Decrypt.

“Unless the regulations explicitly exclude this, [the bill] would penalize standard security measures and recordkeeping,” he mentioned. “This could lead to confusion, over-collection, and disputes.”

Steck is not alone in seeking cryptocurrency as a means to fund education. Wyoming recently introduced its Frontier Stable Token (FRNT), becoming the first state to create a stablecoin, with revenues from the token’s reserves directed to the state’s school foundation fund.

When asked about FRNT, Steck remarked, “They will incur significant expenses to digitally create that currency, which has a considerable energy cost.”

He seemed unaware of the distinctions between proof-of-work and proof-of-stake mechanisms or the fact that Bitcoin’s energy consumption is significantly higher compared to other blockchains, including the seven networks Wyoming’s stablecoin is associated with.

So far, Steck noted that he has not yet had the chance to gauge his colleagues’ opinions on the crypto tax. The bill was just recently introduced, and he indicated that the New York legislature will not reconvene until January.