A new bill before the Texas legislature calls for “a master plan for the expansion of the blockchain industry," that could turn the state into the cryptocurrency capital of the country by introducing tax-free shopping with bitcoin, among other proposals. The Texas legislature only meets in odd numbered years, so the elected representatives need to move quickly before the opportunity to take the lead is lost.
Despite the bill's unimaginative title, it contains exciting and transformative ideas for digital assets. Perhaps next time the legislature could find something that resounds a little better than “Relating to the creation of a work group on blockchain matters concerning this state.”
Government terminology aside, Carla Reyes, an Assistant Professor of Law at SMU Dedman School of Law, chaired the working group and delivered the goods with far reaching recommendations. The report was presented to the legislature in November, and it contained exciting and transformative ideas for digital assets.
If the recommendations are implemented in this legislative session, Texans will experience the benefits of a state leading the way in the blockchain technology and cryptocurrency space. The Texas legislature only meets in odd numbered years, so the elected representatives need to move quickly before the opportunity to take the lead is lost.
Sales Tax Holiday
Payments made in cryptocurrency at the point of sale would receive a two-year retail sales tax holiday. Saving money when shopping is universally well-received, and such a move would incentivize both merchants and consumers to investigate virtual currency and set up the required technology.
Forward thinking Texas companies are not waiting for potential sales tax savings, and are moving ahead today. Bitcoin and other cryptocurrencies have been accepted by the NFL football team the Houston Texans for payment of single-game box suites since August 2022. The Texans are not necessarily holding onto the digital assets, however, and they are working with a financial technology partner so that they may immediately exchange cryptocurrency payments for dollars.
If Texas does enact the sale tax holiday, then perhaps companies would be incentivized to hold onto the cryptocurrency, and spend it for their own purchasing needs. This may be the jumpstart cryptocurrency needs to become an accepted form of payment.
Bitcoin As A Texas State Investment
Continuing with the theme of integrating bitcoin with the state’s payment activity, the working group recommended permitting the state of Texas to invest directly in bitcoin. Allowing Texas to hold bitcoin on the balance sheet is innovative, and if the government were to use that bitcoin for payments that would likely continue to spur the development of digital asset infrastructure within the state.
Bitcoin Mining By The Government
The City of Fort Worth Information Technology Department received three donated Ant Miner S9 bitcoin mining rigs in 2022, and the city undertook a pilot project. The effort grew impactful enough that the three machines were replaced throughout the year with more energy-efficient and powerful Ant Miner S19 units.
Carlo Capua, the city's chief of strategy and innovation, advised the city to continue with mining activities at the city level. Capua did note that the pilot project was not an investment or day trading bitcoin, but an opportunity to study the implications and opportunities of mining. Perhaps it was from this effort that the working group learned more about potential advantages for bitcoin mining and the energy sector.
Bitcoin Mining Tax Incentives
The recommendations include a tax abatement on natural gas previously flared that would be used to mine bitcoin and a tax incentive on electricity sales for large flexible loads, such as bitcoin miners.
The severance tax abatement supports an environmentally friendly transition from flaring gas to consuming gas on-site in a generator This win-win proposal changes the tax incentives from flaring gas to consuming gas when that gas can be used on-site, and will bring jobs and economic activity to rural parts of Texas.
The tax incentives on electricity are intended to be part of the solution for establishing a strong and resilient grid. The proposal is that the miners work with the Texas electricity grid operator, ERCOT, under a controllable or interruptible load strategy.
The Texas Work Group also recommended developing a workforce program that would prepare students to provide value to the growing bitcoin mining ecosystem by learning technical skills of networking, hardware, software, electrical components, and heating and cooling requirements.
Texas State Technical College has taken up the workforce program and is eyeing its initial genesis class in Q1 of 2023. The University of Texas A&M has also taken up the mantle to offer a course in its 2023 spring semester called “The Bitcoin Protocol.” The A&M is geared more toward programming rather than mining.
The Future For Texas
The state of Texas is leading the way in the digital asset space and shows no intention to slow down. The acceleration of innovation within this sector has far reaching affects that will drive great benefits to the states citizenry.
The hardworking efforts of Senator Angela Paxton, Senator Tan Parker, and Representative Giovanni Capriglione in getting House Bill 1576 across the finish line and establishing a Work Group to identify how Texas can established a leadership position must be commended. Texans and the world will be watching as they seek to have all twenty-five recommendations agreed in the current Texas legislative session.