Arizona Makes Bold Move: New Legislation Aims to Exempt Crypto From State and Local Taxes

Arizona is throwing a regulatory curveball that could reshape the financial landscape for digital asset holders within its borders.

The Taxman Cometh—But Maybe Not for Your Bitcoin

Forget waiting on federal clarity. Arizona is taking matters into its own hands with proposed legislation designed to carve out a significant tax haven for cryptocurrency. The bill, if passed, would explicitly remove digital assets from the calculation of state and local income and property taxes. It’s a direct challenge to the status quo, positioning the state as a potential magnet for crypto entrepreneurs and investors tired of regulatory gray areas.

Decentralizing the Revenue Stream

The move isn't just about attracting capital; it's a philosophical stance. Proponents argue that taxing a decentralized, borderless asset class with traditional frameworks is like trying to put a square peg in a round hole—ineffective and stifling to innovation. The legislation effectively treats crypto more like a currency for tax purposes, bypassing the capital gains labyrinth that often ensnares casual traders. Of course, skeptics in traditional finance circles are already muttering about lost revenue and calling it a gimmick—after all, Wall Street still prefers its profits neatly taxed and predictable.

This could be the spark that ignites a state-by-state race to become the crypto-friendliest jurisdiction in the US. Arizona isn't just adjusting a tax code; it's placing a bet on the future of finance. Whether other states follow suit or the Feds step in remains the billion-dollar question. One thing's clear: the fight for crypto's place in the American economy is moving from Twitter debates to the statehouse floor.

Arizona Bills Seek Voter Approval to End Crypto Taxes

Senate Bill 1044 aims to modify the Arizona state laws to include an exemption for taxation on virtual currency. This bill exempts digital assets from taxable classes of property. In that it affects taxation, this bill has to be approved by the voters in the November 2026 General Election.

Another similar bill, Senate Concurrent Resolution 1003, pursues a constitutional path. SCR 1003 proposes to amend the Arizona State constitution to make clear that virtual currency falls outside the definition for property taxes. Like SB 1044, this measure will also go before Arizona voters during the November 2026 election. Its provisions will not go into effect before the certification of the election results.

Supporters of the bills pointed out that the two measures WOULD give clarity in the long run. They intend to harmonize the language used in the law and definitions found in the constitution. Arizona also has its own unique system in place, whereby it can take custody of the digital assets if they are abandoned for at least three years, thanks to an earlier move that wanted to create a reserve for digital assets.

Arizona Bill Blocks Local Taxes on Blockchain Nodes

The third proposed bill, Senate Bill 1045, is concerned with blockchain technology infrastructure. This bill proposed that counties, cities, and towns be prohibited from collecting any tax, fee, or fine from individuals or organizations that maintain blockchain nodes. Blockchain nodes validate and process blockchain transactions.

In contrast to the tax exemption rules, SB 1045 does not require voter approval. It had the potential to MOVE within the state legislature alone. This bill aims to avoid piecemeal local regulations, which could act as deterrents to blockchain involvement.

The Arizona bills come amid a variety of approaches by states. Arizona is one of just a few states that offer digital asset reserve legislation, alongside New Hampshire and Texas. In other states, lawmakers in Ohio introduced a bill that exempts crypto transactions below $200 from the capital gains tax, though this bill has stalled since June. 

In New York, a bill that imposes a 0.2% excise tax on digital asset transactions has also stalled in committee. At the national level, a proposed bill introduced a $300 exemption for small gains from digital assets.

Also Read: Arizona Governor Shuts Down Crypto Bills, But One Quietly Gets Through