Cryptocurrency Miners are Now Eligible for Kentucky Tax Incentives

By: Jeff Glickman, SALT Partner

At a glance

• The main takeaway: Kentucky recently enacted tax incentives focused specifically on cryptocurrency mining facilities.
• Impact on your business: Other states are offering similar types of incentives to attract large data centers, which may apply to crypto miners.
• Next steps: Aprio’s State and Local Tax (SALT) team can help you identify valuable opportunities to obtain crypto tax incentives and assist with the application process.

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The full story:

On March 25, 2021, Kentucky Governor Andy Beshear signed two bills — HB 230 and SB 255 — that provide certain tax incentives for cryptocurrency mining in order to attract miners to the state. Below, we break down the most important aspects of the bills you should know.

HB 230: Sales tax exemption for purchases of electricity

This legislation provides a sales tax and a utility gross receipts tax exemption for the purchase of electricity that is consumed in the “commercial mining of cryptocurrency.” The exemption applies to electricity purchased on or after July 1, 2021, and before July 1, 2030. Here are some of the relevant definitions included in the bill:

• “Commercial mining of cryptocurrency” means the process through which blockchain technology is used to mine cryptocurrency at a colocation facility.
• “Cryptocurrency” is defined as a type of virtual currency that utilizes blockchain technology and that (1) can be digitally traded between users or (2) can be converted or exchanged for legal tender.
• “Mine” means the process through which blockchain transactions are verified and accepted by adding the transactions to a blockchain ledger, which involves solving complex mathematical cryptographic problems associated with a block containing transaction data.
• “Blockchain technology” means shared or distributed data structures or digital ledgers governed by consensus protocols and maintained by peer-to-peer networks that (1) store digital transactions and (2) verify and secure transactions cryptographically.

The colocation facility that houses the tangible personal property that performs the commercial mining of cryptocurrency must consume no less than 200,000 kilowatt hours of electricity per month.

Exemption applications for each colocation facility are eligible to be made on or after July 1, 2021, and on or before June 30, 2025. Once approved, the state will issue an exemption certificate, which is effective as of the date of the exemption application. By November 1, 2021, approved applications are required to report to the state the amount of the tax exemption claimed from the date of the application to September 1, 2021. For each subsequent fiscal year, a similar report is due each November 1.

SB 255: Sales tax exemption for purchases of tangible personal property

This legislation, also effective as of July 1, 2021, provides a sales tax exemption of up to 100% on purchases of tangible personal property, including commercial cryptocurrency mining equipment made to construct, retrofit or upgrade an approved cryptocurrency facility where the minimum capital investment at such facility is one million dollars ($1,000,000).

A “cryptocurrency facility” is a facility located in the state “that is utilized in the commercial mining of cryptocurrency or in hosting persons engaged in the commercial mining of cryptocurrency through utilization of the facility’s infrastructure, including servers and network hardware powered by internet bandwidth, electricity and other services generally required for such mining operations.”[1]

Approved applicants may also be eligible for other incentives, including tax credits against the state’s corporate or limited liability entity tax. The maximum amount of incentives available is limited to 50% of the capital investment. You can find more information about the program and the application process in the state’s fact sheet on the Incentives for Energy-related Business Act (IBEA).

The bottom line

While Kentucky’s legislation focuses on the cryptocurrency mining industry, other states are also providing incentives to this industry through broader data center exemptions, which can encompass cryptocurrency mining as well as other types of data hosting and computing operations.

Aprio’s SALT team is familiar with these types of programs and their requirements. We can help you identify valuable opportunities to obtain tax incentives in this area and assist with the application process.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the August 2021 SALT newsletter.

[1] The other definitions in this bill are similar to those above in HB 230.

Disclosure

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.