The Arizona Senate on Thursday passed a bill that would allow residents to pay their income taxes using Bitcoin or other cryptocurrencies "recognized" by the state's revenue authorities. The law will next be considered by the state's House of Representatives.

Accepting payment of income taxes in cryptocurrency has profound symbolic and practical significance. Historically, the use of government-issued currencies for the payment of income tax has helped guarantee those currency's widespread adoption as a payments medium. Skeptics of systems like Bitcoin, which allow quick global payments but are not issued or backed by governments, have argued in part that their separation from government revenue structures reduces their inherent usefulness and, in turn, value.

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The Arizona move, then, is a positive signal for Bitcoin. But Arizona State Representative Jeff Weninger, who has sponsored similar bills, says the primary goal is to foster technological innovation in the state. The bill, Weninger told Fox News, is "sending a signal to everyone in the United States and possibly throughout the world that Arizona is going to be the place to be for blockchain and digital currency technology in the future."

That may sound like a longshot, given the concentration of tech innovation in places like San Francisco and New York. But blockchain tech in particular has been met with widely divergent regulatory approaches that could reshape that landscape. For instance, New York's controversial 'BitLicense' law is widely seen as restrictive to blockchain innovation and may be pushing startups out of the state.

The Arizona Senate bill includes a provision mandating that cryptocurrency payments be converted to U.S. dollars within 24 hours of their payment. That could help address concerns about the volatility of cryptocurrency values and its potential impact on state revenues.

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