January 12, 2023 3:22 pm in Crypto

Texas Cryptocurrency Regulations

In Texas, there are currently no specific regulations regarding the use of Bitcoin or other cryptocurrencies. However, the state’s Money Services Act applies to businesses that deal in virtual currency. The Texas Department of Banking has issued guidance stating that virtual currency is considered a form of money under the Act. Companies that sell in virtual currencies, such as exchanges and ATMs, must comply with state money transmission laws and regulations. Additionally, the IRS has stated that virtual currencies, including Bitcoin, are considered property for federal tax purposes.

Money Services Act Texas:

The Texas Money Services Act is a state law that regulates businesses that deal in monetary instruments, including virtual currencies like Bitcoin and other cryptocurrencies. The Act applies to companies that provide money transmission services, including issuing or selling payment instruments or accepting and transmitting money or monetary value.

Under the Act, businesses that deal in virtual currencies must register with the Texas Department of Banking and comply with state money transmission laws and regulations, including bonding, reporting, and record-keeping requirements. They must also have anti-money laundering programs and comply with applicable federal laws such as the Bank Secrecy Act.

Additionally, the Act requires that these businesses have a net worth of at least $500,000 and maintain a surety bond of not less than $150,000.

The Act is intended to protect consumers and prevent money laundering, fraud, and other financial crimes and applies to all business types, including banks, credit unions, money service businesses, and virtual currency exchanges.

Tax Obligations Texas:

In Texas, individuals and businesses owning or trading in Bitcoin and other cryptocurrencies may have tax obligations under state and federal laws.

At the federal level, the IRS has stated that virtual currencies, including Bitcoin, are considered property for tax purposes. Any taxable event involving a virtual currency, such as trading or using it to purchase goods or services, is subject to capital gains taxes. The virtual currency’s cost basis, or the virtual currency’s value at the time it was acquired, will be used to determine the gain or loss on a subsequent sale or trade.

The state still needs to issue guidance on the tax treatment of virtual currency transactions in Texas. However, virtual currency transactions would likely be subject to state sales and use taxes, and virtual currency would be treated as property for property tax purposes.

Tax laws and regulations surrounding virtual currencies are complex and constantly evolving, so individuals and businesses should consult with a tax professional to ensure compliance with state and federal tax laws.

Texas Department of Banking:

The Texas Department of Banking has issued guidance stating that virtual currency, including Bitcoin and other cryptocurrencies, are considered a form of money under the state’s Money Services Act. Businesses that deal in virtual currencies, such as exchanges and ATMs, must register with the Department and comply with state money transmission laws and regulations.

The Department’s guidance states that businesses that deal in virtual currencies are considered to be “money services businesses” (MSBs) under the Act and must comply with all applicable requirements, including:

Registering with the Department
Obtaining a surety bond for not less than $150,000
Having a net worth of at least $500,000
Having anti-money laundering programs in place
Complying with federal laws such as the Bank Secrecy Act
Filing Suspicious Activity Reports (SARs) as necessary

The Department’s guidance also notes that businesses that deal in virtual currencies may be subject to examination by the Department to ensure compliance with the Act and all applicable regulations.

It is important to note that the guidance from the Texas Department of Banking is subject to change as laws and regulations surrounding virtual currencies are constantly evolving. Businesses operating in Texas are encouraged to stay informed of any updates to the guidelines and laws related to virtual currencies.

Texas Blockchain Legislation:

In 2019, the Texas House of Representatives passed House Bill (HB) 838, which recognises the validity of blockchain technology and smart contracts and allows for the use of distributed ledger technology in certain financial transactions. The bill also provides for creating specific types of digital wallets and establishes a framework for regulating virtual currencies.

Also in 2019, the Texas House of Representatives passed House Bill (HB) 4371, establishing a blockchain task force to study the technology and its potential applications in the state. The task force is charged with investigating the benefits and challenges of blockchain technology and making recommendations for developing policies and regulations related to blockchain.

On June 15, 2021, cryptocurrency-specific legislation was passed under the laws of Texas when Governor Abbott signed House Bill 4474 into law. Specifically, the bill adds amendments to the state’s Business & Commerce Code to address virtual currency. The bill’s short title is the “Texas Virtual Currency Bill” (TVCB). Overall, the law specifically addresses cryptocurrency by (1) recognising the legal status of virtual currency, (2) ensuring that cryptocurrencies are subject to commercial laws under Texas regulations, and (3) supplying legal rights to cryptocurrency holders. Under section 12 of the TVCA, the Act became effective on September 1, 2021. *(1)

Texas State Securities Board:

The Texas State Securities Board (TSSB) regulates securities and securities-related activities in the state of Texas. This includes handling activities related to cryptocurrencies, such as initial coin offerings (ICOs) and other token sales.

The TSSB has issued guidance stating that cryptocurrencies and tokens sold through ICOs may be considered securities under Texas law and that any person or entity offering or selling such securities must comply with state securities laws. This includes registering with the TSSB and providing full disclosure to investors, including information about the risks involved with investing in the cryptocurrency or token.

The TSSB has also issued cease and desist orders against several companies it believes are engaging in fraudulent or misleading activities related to cryptocurrencies. The TSSB has also warned investors to be careful when investing in cryptocurrencies and to thoroughly research any investment opportunities before investing.

Businesses operating in Texas are encouraged to stay informed of updates to the guidelines and laws related to cryptocurrencies.

TSSB Investor’s Guide to Cryptocurrency Offerings:

The Texas State Securities Board (TSSB) has issued an Investor’s Guide to Cryptocurrency Offerings, which provides information to help investors understand the risks and potential benefits of investing in cryptocurrencies and initial coin offerings (ICOs).

The guide advises investors to be cautious when investing in cryptocurrencies, as any physical assets or government guarantees do not back them. The guide also warns investors to be aware of the potential for cryptocurrency fraud and thoroughly research any investment opportunities before investing.

The guide also provides information on how to spot potential fraud in cryptocurrency offerings, such as:

Unsolicited offers: Be cautious of unsolicited offers to invest in cryptocurrencies or ICOs.
Promises of high returns: Be wary of promises of high returns with little or no risk.
Unlicensed sellers: Be sure to check that the person or entity offering the investment is licensed to do so in the state of Texas.
Lack of information: Be sceptical of investments where important information, such as the issuer’s identity or the use of proceeds, needs to be provided.

The TSSB warns investors that virtual currencies and tokens sold through ICOs may be considered securities under Texas law and that any person or entity offering or selling such securities must comply with state securities laws.*(2)

Texas Anti-Money Laundering:

In Texas, businesses that deal in virtual currencies, such as Bitcoin and other cryptocurrencies, are subject to anti-money laundering (AML) laws and regulations. These laws and regulations are intended to prevent money laundering and other financial crimes and are enforced by the Texas Department of Banking and other state and federal agencies.

The primary federal law that applies to AML regulations for virtual currencies is the Bank Secrecy Act (BSA). This law requires financial institutions, including virtual currency businesses, to implement AML programs, maintain records of transactions, and report suspicious activities to the Financial Crimes Enforcement Network (FinCEN).

Under the Texas Money Services Act, businesses that deal in virtual currencies must have AML programs in place that include the following:

Customer identification and verification procedures
Record-keeping and reporting requirements
Internal controls to detect and report suspicious activities
Independent testing of the AML program

Additionally, these businesses must file Suspicious Activity Reports (SARs) with the appropriate authorities when they suspect a transaction is related to money laundering or other financial crimes.

Bitcoin ATMs in Texas:

In Texas, Bitcoin ATMs are considered money services businesses (MSBs) under the state’s Money Services Act. Businesses that operate Bitcoin ATMs in Texas must register with the Texas Department of Banking and comply with state money transmission laws and regulations. This includes obtaining a money transmitter license, maintaining a surety bond, and having a net worth of at least $500,000.

Additionally, Bitcoin ATM operators must also comply with federal laws related to money transmission, such as the Bank Secrecy Act (BSA). This includes implementing anti-money laundering (AML) programs and filing Suspicious Activity Reports (SARs) as necessary.

The Texas Department of Banking has also issued guidance stating that virtual currencies, including Bitcoin, are considered a form of money under the state’s Money Services Act and that businesses that deal in virtual currencies must comply with the Act and all applicable regulations. This means that Bitcoin ATMs in Texas must comply with all the requirements in the Act.

Consumer Protection in Texas:

In Texas, consumer protection laws apply to transactions involving cryptocurrency, just as to transactions involving other currencies or financial products. The primary agency responsible for enforcing consumer protection laws in Texas is the Office of Consumer Credit Commissioner (OCCC).

The OCCC is responsible for enforcing state laws that protect consumers from fraud, deception, and other harmful practices in selling financial products and services. This includes ensuring that businesses that deal in virtual currencies, such as Bitcoin and other cryptocurrencies, provide accurate and complete information to consumers about the risks and potential benefits of investing in these currencies.

Additionally, the OCCC also has the authority to take legal action against businesses that engage in fraudulent or deceptive practices related to the sale of virtual currencies. This can include revoking a business’s license, imposing fines, or taking other legal action.

Consumers in Texas who believe they have been victims of fraud or deception related to a virtual currency transaction are encouraged to file a complaint with the OCCC.

FinCen:

In Texas, businesses that deal in virtual currencies, such as Bitcoin and other cryptocurrencies, are subject to federal regulations under the Financial Crimes Enforcement Network (FinCEN). These regulations are intended to prevent money laundering and other financial crimes and are enforced by FinCEN and other state and federal agencies.

Under the Bank Secrecy Act (BSA), virtual currency businesses are considered to be “money services businesses” (MSBs) and are required to comply with the following regulations:

Implement anti-money laundering (AML) programs
Register with FinCEN as a MSB
Maintain records of transactions and customers
Report suspicious activities to FinCEN
Comply with “Know Your Customer” (KYC) and “Customer Identification Program” (CIP) regulations

These regulations are intended to help detect and prevent money laundering and other financial crimes by requiring virtual currency businesses to implement AML programs and report suspicious activities to FinCEN.

Individuals and businesses in Texas should consult a tax professional to understand their obligations under state and federal laws.

*(1) https://freemanlaw.com/cryptocurrency/texas/
*(2) https://www.ssb.texas.gov/investors-guide-cryptocurrency-offerings