This week, Senator Peter A. Appollonio of Rhode Island submitted a bill numbered S2021 to the state legislature, which directly addresses the tax burden of small Bitcoin transactions at the local level in the United States for the first time. The core of the proposal is to provide state income tax and capital gains tax relief or exemptions for Bitcoin small transactions with an annual trading volume not exceeding $20,000 (the threshold is based on a single source). This setting is viewed by some market observers as an experimental move in the "micro-innovation of the U.S. crypto tax system," but it also immediately places Rhode Island in a sensitive position: on one hand, the state government hopes to attract crypto activity through tax reductions, while on the other hand, there is an already established federal crypto tax framework. The potential conflict between the two regarding taxing authority and compliance boundaries has become the real focus of the debate surrounding the S2021 bill.
A Shift in Bitcoin Sentiment Initiated by a State Senator
In this policy experiment, Peter A. Appollonio's personal role is particularly prominent. He initiated the S2021 bill as a Rhode Island state senator, allowing the proposal to directly enter the regular legislative process at the state level—first reviewed by the relevant committee, then potentially moving to a full vote and subsequent procedures. Current public information has not disclosed a more detailed timeline or the composition of supporting factions, but it can be confirmed that S2021 has completed the first step from concept to formal bill text. The design idea surrounding small Bitcoin transactions focuses on "burden reduction" at the levels of state income tax and capital gains tax: first, for annual Bitcoin buying, selling, payment, and exchange small transactions, if the total does not exceed $20,000, they will no longer be included in the taxable base at the state level as regular capital gains or ordinary income; second, it attempts to clearly exempt small transactions that are originally scattered and difficult to report from the cumbersome tax calculation. This targeted exemption for small transactions has led some opinion leaders in the crypto community to call S2021 "the first special tax exemption proposal for small crypto transactions in the U.S." (the evaluation comes from @jinseBTC, based on a single source, and has not received broader official confirmation), igniting discussion heat in public opinion.
The $20,000 Threshold: Who Really Benefits?
From a logical perspective, the threshold of an annual trading volume not exceeding $20,000 is almost a policy parameter tailored for ordinary retail investors. For most individual investors, even with relatively frequent buying and selling activities, the total annual turnover often remains in the range of a few thousand to tens of thousands of dollars. Tax obligations at this level are often overlooked, passively underreported, or considered a "troublesome matter" due to high calculation costs. Once these transactions are explicitly excluded from state tax collection, it means that the compliance costs and psychological burdens for small-scale participants at the state level are significantly reduced. In contrast, institutional and large investors may have single transactions or daily trading volumes far exceeding $20,000. In activities such as asset allocation, arbitrage, and market making, the tax burden is just one part of the overall cost structure, with marginal sensitivity far lower than that of retail investors. For these entities, if S2021 is implemented, it can only provide marginal convenience for a very small number of "fragmented small orders," while most of their transactions still fall under the complete federal and state tax constraints. Therefore, the $20,000 threshold effectively acts as a screening line, separating truly small activities aimed at everyday participants from the entanglement of compliance and tax administration. Behaviorally, this setting may reshape three typical actions: short-term traders may become bolder in conducting low-amount, high-frequency operations, as concerns about state tax burdens are partially alleviated; users attempting to make small daily payments with Bitcoin may no longer worry that each "transaction" triggers complex capital gains reporting; and for those who insist on long-term holding, while the small exemption may not change their "hoarding" logic, it increases their flexibility in small-scale cashing out and asset adjustments.
State Innovation Meets Federal Red Lines in a Gray Area
To understand the institutional friction that Rhode Island's move may trigger, it is essential to compare it with the federal tax framework for crypto transactions in the United States. Currently, at the federal level, relevant regulatory agencies treat assets like Bitcoin as property, meaning that whether selling, exchanging for fiat, or using it to pay for goods and services, as long as there is a difference, it generally constitutes a taxable event, subject to capital gains or ordinary income tax in specific situations. This set of rules directly constrains taxpayers nationwide through federal tax law, while states have their own income tax legislative authority based on this framework, allowing them to choose to follow, make minor adjustments, or provide exemptions within a certain range, but they cannot touch the federal taxable base itself. Rhode Island's S2021 attempts to "loosen" the state income tax and state-level capital gains tax, allowing small Bitcoin transactions to be treated as exempt items on the state tax form. However, this does not change the reality that taxpayers still need to report relevant gains at the federal level according to existing rules. In other words, a Rhode Island resident, even if they can avoid reporting some small Bitcoin transactions on their state tax return in the future, still needs to calculate costs and gains for each transaction when filing federal taxes, fulfilling complete reporting obligations. This "state leniency and federal strictness" structure is bound to confuse many taxpayers about where they need to report and where they can leave blank. In practice, if tax software, accounting services, and tax form guidance cannot be updated in sync and clearly delineate the differences between federal and state, it is easy for some to mistakenly believe that "since the state does not collect tax, the federal can also be ignored," thus leaving compliance risks at the federal level. Regulatory agencies may also face more cases with blurred boundaries during enforcement: transactions may be exempt from state tax but still require complete records and audits at the federal level, increasing the complexity of information integration and data sharing.
From Zero Policy to Experimental Field: Rhode Island's Gamble
Looking back at Rhode Island's policy trajectory, it is evident that this is not a state that has long been deeply involved in crypto tax systems. Research brief information shows that Rhode Island previously had almost no specific tax policies for crypto assets, and crypto-related gains were more "embedded" within the general income tax and capital gains tax framework, treated the same as other investment assets. Throwing out a special bill for small tax reductions at such a starting point seems particularly abrupt. Across the United States, states have highly divergent attitudes toward the tax issues of crypto assets: some states choose to actively embrace the crypto industry in regulatory and licensing aspects but remain cautious in tax treatment, following federal guidelines; others deliberately maintain ambiguity, neither providing additional incentives nor issuing overly detailed guidance, keeping crypto assets at a "low visibility" in the tax system. On this spectrum, Rhode Island was previously closer to the "low presence" end, but now it attempts to make a significant leap in the direction of tax reduction through S2021. Because it was almost in a "zero policy" state before, this shift is seen by outsiders as a gamble with experimental characteristics: if small tax reductions can attract more crypto trading activity, entrepreneurial projects, and related services to gather in the state without significantly eroding the tax base, Rhode Island is expected to quickly shape a "crypto-friendly" label, gaining leverage in the emerging digital asset economy. For a medium-sized state, gaining national attention by becoming the "first small tax reduction case" is itself a carefully designed image battle.
Compliance Rate Only 34%: Can Tax Reductions Stimulate Real Reporting?
Discussing the experimental value of Rhode Island must also be placed against the backdrop of the reality of crypto tax compliance across the United States. Data from a single source cited in the research brief indicates that the compliance rate for crypto-related taxes in the U.S. in 2024 is only about 34%, meaning that over 60% of potential taxable crypto trading gains have not been fully reported according to existing rules. Behind this low compliance rate are elements of both intentional concealment and tax evasion, as well as a large number of "passive non-compliance" stemming from complex systems, scattered records, and high calculation costs. In this environment, whether small exemptions can create an incentive effect has become a major reason for the attention on S2021. If taxpayers know that Bitcoin transactions below a certain amount can be exempt from state tax, it also means they do not have to go through cumbersome record-keeping and classification for these small operations when filing state taxes, potentially reducing the motivation to conceal transactions, as both "reporting costs" and "potential tax burdens" decrease, thus increasing the cost-effectiveness of proactive compliance. However, reality will not automatically improve due to a single dimension of tax reduction. On one hand, even if state taxes are reduced, small conversions are still taxable at the federal level, and taxpayers still face the complex forms and calculation rules of federal tax reporting, which weakens the tax reduction's ability to boost overall compliance willingness. On the other hand, given that many taxpayers currently have insufficient understanding of the crypto tax system, and education and guidance are severely lagging, even a more friendly exemption threshold may remain on paper due to insufficient information transmission. If the reporting process is not simplified accordingly and tax tools are not updated in a timely manner, even if S2021 is implemented, its impact on compliance rates may be offset by actual operational costs, or even create new confusion due to diversified standards.
If the Bill is Passed, the U.S. Crypto Tax Experiment Will Add New Variables
Without making any numerical predictions about the probability of S2021's passage, one can cautiously speculate on the potential impacts it may have on Rhode Island's local trading ecosystem and tax base structure if implemented. On one hand, small Bitcoin transactions receiving state tax exemptions are expected to enhance residents' willingness to use Bitcoin for small investments and payments in the short to medium term, bringing more transactions that were previously in gray areas into public channels, thereby broadening the observable scope for tax authorities through a "thin profit, high volume" approach; on the other hand, tax reductions on paper mean giving up a portion of potential tax revenue, but considering that small transactions already face widespread underreporting and high compliance costs, the actual scale of lost taxable income may not be as significant as imagined. More importantly, as a state-level policy experiment, if S2021 is truly implemented, it will provide a real sample for other states to consider their local crypto tax systems: it may be seen as a positive signal encouraging innovation and lowering compliance thresholds, or it may be criticized as misaligned with federal rules, setting a precedent that increases compliance burdens. In the context of a multi-layered tax system coexisting at the federal and state levels, the demonstration and controversy effects of such local experiments often run parallel, stimulating more legislative imagination while forcing regulatory agencies at different levels to clarify boundaries of responsibility. It is important to emphasize that many key technical details surrounding S2021 still need to be clarified through the legislative process, including the specific applicability of exemption standards in different transaction scenarios and whether there are specific time windows for such designs (relevant time and amount information in the brief is marked as pending verification and is not specifically quoted in this article). For investors who have already participated or plan to participate in Bitcoin trading, what truly needs attention is the changes in the publicly available text during the subsequent review process and the updates of accompanying guidance from tax authorities, rather than making any bets on the fate of the bill at any point in time or probability.
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