Buying Starbucks Coffee with Bitcoin May Be More Tax Trouble Than It’s Worth

The idea of being able to buy a cup of coffee with Bitcoin is effectively the triumph of the digital currency adoption cycle. Carrying out daily ubiquitous transactions with digital currency would effectively end the adoption debate, and drive user growth. It is no wonder, then, that crypto fanatics rejoiced with jubilee at the prospect.

All That Glitters…

However, in spite of the huge adoption win that a Bakkt/Starbucks partnership would be, there could be major problems as well. The Internal Revenue Service (IRS) considers the nature of Bitcoin as a store of value or property, rather than a currency. Companies receiving it are required to pay taxes on the gains or losses incurred from the time of the transaction until the coins are sold. This creates a massive, almost insurmountable headache for Starbucks and retail outlets like it. Every single transaction made in Bitcoin would need to be tracked so that the gains or losses of the value of BTC could be reported. A failure to report gains or losses would essentially be tax evasion. This complexity does not end at the register, either. Should the company retain any of the Bitcoin for any length of time, it would become an asset. This would hit the balance sheets immediately, but only at the price of each individual transaction. In other words, each micro-payment would need to be individually tracked for tax purposes. In a word, the complexity is ridiculous.

Solutions to Come?

However, there may be a number of silver linings. First off, customers could simply use the retail giant for micro-exchanges. By swapping Bitcoin for fiat at the register digitally, the company could receive payment in fiat, circumventing tax liabilities. This solution is simple, but would likely increase time in payment processing—a problem the company cannot afford to have. However, this appeared to be the direction the Starbucks was heading in the fall of last year. The vice president of partnerships and payments at the time, Maria Smith, said, “Starbucks will play a pivotal role in developing practical, trusted and regulated applications for consumers to convert their digital assets into U.S. dollars for use at Starbucks.” A second solution would involve federal tax changes in the definition and application of cryptocurrencies. If Bitcoin’s status moved from ‘property/asset’ to currency, the requirement to report capital gains and losses would be moot. However, such changes take time. The government rarely moves at the speed of business. Regardless of the direction the company takes, the simple fact of making digital payments at the chain is encouraging. Bitcoin’s market presence is finally beginning to be realized. Of course the market explosion last year had nearly everything to do with the adoption increase. Nevertheless, the need is not only for investor participation, or the FOMO. Instead, the movement toward widespread adoption as a payment methodology will provide the transactional basis that Bitcoin needs. Such adoption will inevitably produce growth in use, ownership, and thereby, price. Do you think Starbucks will move ahead with Bitcoin payments in spite of the tax complexities, or will the retail giant cut its losses? Let us know your thoughts in the comments below!