Ohio's Bitcoin Tax Program Was Illegal, State Attorney General Says

Resuming Ohio's attempt to allow cryptocurrency in certain tax payments is up in the air after the state's top lawyer found a Bitcoin program launched by the former state treasurer was illegal.

Republican Attorney General Dave Yost found then-Treasurer Josh Mandel skirted state law when he launched the OhioCrypto.com website last year for business tax payments.

Yost's legal opinion, issued Nov. 5, found that Atlanta-based BitPay, the state's third-party processor, was functioning as a "financial transaction device." That meant a competitive selection process, as well as the sign-off of the state Board of Deposit, was required to hire them. Messages seeking comment were left with Mandel and BitPay.

Treasurer Robert Sprague, a fellow Republican who succeeded Mandel in January,  abruptly shut down the site last month after an internal review raised issues.

The deposit board, which he chairs, requested Yost's opinion at that time and now has the power to decide how to proceed.

Sprague said at the time that it's vital for Ohio to explore innovative new technologies, but that they must be "established in accordance with Ohio law."

Bitcoin is a cryptocurrency, or a form of digital cash secured by encryption technology. The currency has both excited and worried consumers, economists and governments around the world. It exists not as physical bills or coins but as lines of digitally signed computer code, making it easy to use and not always easy to track, secure and regulate. Records are typically kept on ledgers known as blockchain.

Ohio's program didn't send bitcoins to the state treasury, but rather enlisted BitPay to convert the cryptocurrency payments into U.S. currency.

Dave O'Neil, a spokesman for Yost's office, said the opinion on OhioCrypto.com was advisory in nature, so it would not be appropriate to refer it to law enforcement, despite the finding of a legal violation.

Mandel  launched the program in November 2018, just before leaving office. He said at the time that Ohio was the first state to accept tax payments via cryptocurrency and that it would help Ohio become a leader in embracing blockchain technology.

Sprague said in the 10 months that the website operated, fewer than 10 businesses chose to pay their taxes using cryptocurrency. He said he could not provide specifics on those payments, such as their individual or combined dollar amounts, because of confidentiality protections.

A "financial transaction device" is defined broadly under Ohio law to include a credit or debit card, an e-check entry, various automated financial transactions, such as internet-initiated or telephone-initiated applications — "or any other device or method for making an electronic payment or transfer of funds."

Sprague's office said the three-member deposit board — which also includes Yost and State Auditor Keith Faber — has not yet scheduled its next meeting.

Copyright 2019 WOSU 89.7 NPR News. To see more, visit WOSU 89.7 NPR News.