OHIO LEGISLATIVE SERVICE COMMISSION
Office of Research Legislative Budget
www.lsc.ohio.gov and Drafting Office
H.B. 406 Bill Analysis
135th General Assembly
Click here for H.B. 406’s Fiscal Note
Version: As Introduced
Primary Sponsors: Rep. Demetriou
Effective date:
Austin C. Strohacker, Chris Edwards, and Andrew Little,
Attorneys
SUMMARY
Prohibits the state and local governments from impairing the use of digital assets or
holding such assets through hardware, self-hosted, or third-party wallets.
Permits digital asset mining by individuals in residential areas, subject to applicable local
ordinances.
Permits digital asset mining businesses to operate in any area zoned for industrial use.
Prohibits local governments from adopting noise or zoning regulations specific to digital
asset mining.
Prohibits local governments from rezoning an area used by a digital asset mining
business without proper notice and comment, and allows a digital asset mining business
to appeal discriminatory zoning actions.
Excludes asset miners and blockchain node operators from money transmitter, security,
and investment laws.
Specifies that asset miners and blockchain node operators are not civilly or criminally
liable in connection with any specific transaction merely for validating that transaction.
States that the state and local governments with home rule authority may not impose a
fee, tax, assessment, or other charge on digital assets used as a method of payment.
Allows a state income tax deduction for the capital gains from the sale of digital assets
used as a method of payment, up to $200 per transaction, increased annually for
inflation.
Prohibits municipal corporations from subjecting such capital gains to municipal income
tax.
May 20, 2024
Office of Research and Drafting LSC Legislative Budget Office
Requires each state retirement system to evaluate the potential risks and benefits of
investing in an exchange-traded fund (ETF) that holds digital assets and consult with
businesses that offer an approved digital asset ETF.
Requires each retirement system, by March 1, 2025, to submit to the General Assembly
a report on the feasibility and potential risks and benefits of investing in a digital asset
ETF and options and recommendations to minimize risk if it invests in one.
Names the bill the Ohio Blockchain Basics Act.
DETAILED ANALYSIS
Digital asset regulations
Usage regulations
The bill prohibits the state and its political subdivisions from impairing the ability of
individuals to (1) use digital assets to purchase legal goods or services, or (2) hold custody of
digital assets using a hardware wallet, a self-hosted wallet, or a third-party wallet.1
Under the bill, a “digital asset” includes virtual currency, cryptocurrencies, native
electronic assets, such as stablecoins and nonfungible tokens, and other digital-only assets that
confer economic, proprietary, or access rights or powers. The bill defines “hardware wallet” as
a physical device that is not continuously connected to the internet, allows an individual to
secure and transfer digital assets, and under which the owner of the digital assets retains
independent control over the digital assets. “Self-hosted wallet” is defined as a digital interface
used to secure and transfer digital assets and under which the owner of the digital assets
retains independent control over the digital assets.2
Asset mining regulations
The bill includes certain protections for individuals and businesses engaged in “digital
asset mining,” which means using electricity to power a computer or node for the purpose of
securing a blockchain network. It provides that any person may engage in “home digital asset
mining” – asset mining in an area zoned for residential use – as long as the person complies
with all applicable local ordinances and other regulations, including noise ordinances in
residential areas. The bill prohibits political subdivisions from adopting noise ordinances that
are specific to home digital asset mining.3
The bill expressly permits “digital asset mining businesses” – a group of computers that
consume more than one megawatt of electricity for the purpose of securing a blockchain
protocol – to operate in any area zoned for industrial use and prohibits political subdivisions
1 R.C. 1352.02.
2 R.C. 1352.01(C), (F), and (J).
3 R.C. 1352.03(A) and (B) and 1352.01(D) and (G).
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from enacting ordinances specific to digital asset mining businesses that do not also apply to
data centers and other similarly situated businesses. The bill prohibits also political subdivisions
from rezoning areas containing digital asset mining businesses without going through the
proper notice and comment process. It does not specify what constitutes a “proper notice and
comment process.” If a digital asset mining business believes that it was discriminated against
in a rezoning process, it may appeal the rezoning to the county’s court of common pleas. If the
rezoning is found to be discriminatory, the bill requires the judge to reject the rezoning. 4
Money transmitter regulations
The bill specifies that individuals engaged in digital asset mining or operating a node or
series of nodes on a blockchain protocol are not required to obtain a money transmitter
license.5 Under continuing law, unchanged by the bill, money transmitters are overseen by the
Superintendent of Financial Institutions within the Department of Commerce. Money
transmitters are any entity or person that is contracted “to receive, directly or indirectly and by
any means, money or its equivalent from a person and to deliver, pay, or make accessible, by
any means, method, manner or device, whether or not a payment instrument is used, the
money received or its equivalent to the same or another person, at the same or another time,
and at the same or another place.” All money transmitters are required to be licensed by the
Department of Commerce. Banks, credit unions, savings and loan institutions, and savings
banks are exempt from the money transmitter law and the associated license requirement.6
The bill defines “blockchain” as data that is all of the following:
Shared across a network to create a ledger of verified transactions or information
among network participants;
Linked using cryptocurrency to maintain the integrity of the ledger and to execute other
functions;
Distributed among network participants in an automated fashion to concurrently
update network participants on the state of the ledger and any other functions.
The bill defines “blockchain protocol” as any executable software deployed to a
blockchain composed of source code that is publicly available and accessible, including a smart
contract or network of smart contracts.
“Node” is defined by the bill as a computational device that communicates with other
devices or participants on a blockchain to maintain consensus and integrity of that blockchain,
4 R.C. 1352.03(C) through (F) and 1352.01(E).
5 R.C. 1352.04(A).
6 R.C. 1315.01(G) and 1315.02(A), not in the bill.
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create and validate transaction blocks, contain and update a copy of a blockchain, or any
combination of the foregoing.”7
Security and investment laws
The bill specifies that a business providing digital asset mining or staking services is not
considered to be offering a security or investment contract. “Staking” is defined as the act of
committing digital assets for a period of time to validate and secure a specific blockchain
network.8
Liability for validating transactions
Additionally, the bill specifies that anyone engaged in digital asset mining, operating a
node or series of nodes, or providing digital asset mining or staking services is not civilly or
criminally liable in connection with any specific transaction merely for validating that
transaction.9
Home rule
If challenged, a court might examine the bill’s provisions that limit local governments’
authority to regulate digital assets and digital asset mining, including through zoning and noise
regulations. Under the Home Rule Amendment to the Ohio Constitution, municipal
corporations and charter counties have authority to adopt and enforce local police regulations,
so long as an ordinance does not conflict with a general state law.10 In order to be a general
law, a statute must satisfy all four prongs of the Canton test:
1. It must be part of a statewide and comprehensive legislative enactment;
2. It must apply to all parts of the state alike and operate uniformly throughout the state;
3. It must set forth police, sanitary, or similar regulations, rather than purport only to grant
or limit legislative power of a municipal corporation to set forth police, sanitary, or
similar regulations;
4. It must prescribe a rule of conduct upon citizens generally.11
Prohibited taxes and fees
The bill states that the General Assembly may not enact any bills that propose to impose
a fee, tax, assessment, or other charge on digital assets used as a method of payment based on
7 R.C. 1352.01(A), (B), and (H).
8 R.C. 1352.01(K) and 1352.04(B).
9 R.C. 1352.04(C).
10 Ohio Constitution, Article XVIII, Section 3 and Article X, Section 3. Because limited home rule
townships derive their home rule powers statutorily, those powers may be limited statutorily.
11 Canton v. State, 95 Ohio St.3d. 149 (2002). For more information about what constitutes a “general
state law,” please see LSC’s Home Rule Members Brief (PDF), available at lsc.ohio.gov.
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the use of the asset as payment, on the sale, use, or consumption of digital assets, or on the
basis of receipts received from the sale of digital assets. The Ohio Constitution does not
authorize the General Assembly to bind future General Assemblies by statute.12 Indeed, a
future General Assembly can revise or repeal laws enacted by a prior one.
The bill places a similar prohibition on the legislative authority of charter counties,
limited home rule townships, and municipal corporations. Each of those local entities possesses
home rule authority (described above). In the case of charter counties and municipal
corporations, this authority is granted under the Ohio Constitution and is subject to
constitutional considerations, but in the case of limited home rule townships, the authority is
statutory and can be limited as desired by the General Assembly. Despite the constitutional
source of municipal and charter county home rule, the General Assembly has broad authority
to limit local municipal taxation, and Ohio’s two charter counties – Cuyahoga and Summit –
have limited their taxing authority to only the authority granted by noncharter counties.13 It is
less clear, in the context of charter counties and municipalities, however, whether and to what
extent home rule authority may prevail over a statutory effort to prevent fees or other charges
because taxes and fees are legally distinguishable.14
The bill’s prohibitions do not apply to fees, taxes, and assessments or other charges if
the same would also apply to a transaction executed with U.S. dollars.
State and municipal income tax deduction for digital asset gains
Continuing law treats capital gains as ordinary income, and they are taxed in the same
manner as other income rather than as a separate category of income, as under federal law.
The bill provides a personal income tax deduction for the capital gains from the sale of digital
assets used as a method of payment, provided the total transaction does not exceed $200, as
adjusted annually to account for the increase in the Consumer Price Index (CPI). 15
The bill similarly prohibits municipal corporations that tax capital gains from taxing the
sale of digital assets used as a form of payment as capital gains, so long as the transaction
would qualify for the income tax deduction allowed for the state income tax. Current law does
not generally allow municipalities to subject capital gains to their income tax, except that it
12R.C. 101.88; Ohio Const., art. II, sec. I; Bd. of Trs. of the Tobacco Use Prevention & Control Found. v.
Boyce, 127 Ohio St. 3d 511, 515 (2010) (“Although the General Assembly’s plenary legislative power is
expansive, it is not all-inclusive. It does not include the ability to bind future General Assemblies. ‘No
general assembly can guarantee the continuity of its legislation or tie the hands of its successors.’”).
13Ohio Const., art. XIII, sec. 6 and art. XVIII, sec.13; Article I, Section 1.02, Charter of Cuyahoga County
and Article I, Section 1.02, Charter of Summit County.
14 R.C. 301.30, 504.04, and 715.013; see e.g., Drees Co. v. Hamilton Twp., 132 Ohio St.3d 186 (2012).
15 R.C. 5747.01(A)(44).
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does allow two municipalities that had taxed capital gains under previous law – Wyoming and
Indian Hills – to continue to do so.16
These deductions apply to taxable years ending on or after the bill’s 90-day effective
date.17
State retirement systems and digital assets
The bill requires each state retirement system to do both of the following:
Evaluate the potential risks and benefits of investing assets of the system’s funds in an
exchange-traded fund (ETF) that has holdings in digital assets;
Consult, to the extent practicable, with businesses that have been granted the U.S.
Securities and Exchange Commission’s approval to offer a digital asset ETF.
Not later than March 1, 2025, each state retirement system must submit to the General
Assembly a report that includes both of the following:
Information regarding the feasibility and potential risks and benefits of investing in a
digital asset ETF;
Options and recommendations for the retirement system to minimize risk if it invests in
a digital asset ETF.
The state retirement systems are the Public Employees Retirement System, Ohio Police
and Fire Pension Fund, State Teachers Retirement System, School Employees Retirement
System, and State Highway Patrol Retirement System.18
Name
The bill specifies that it is to be known as the “Ohio Blockchain Basics Act.”19
HISTORY
Action Date
Introduced 02-12-24
ANHB0406IN-135/ks
16 R.C. 718.01(C)(2)(b).
17 Section 3.
18 Section 4.
19 Section 5.
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As Introduced
Statutes affected: As Introduced: 301.30, 504.04, 715.013, 718.01, 1315.01, 5747.01