Home – Blockchain, Cybersecurity Will Challenge Lawmakers in 2019

Blockchain, Cybersecurity Will Challenge Lawmakers in 2019

 SNCJ devotes the last three issues of each year to a preview of the coming state legislative sessions. Here in part one of that three-part series we’ll take a look at a few of the issues that are likely to draw the attention of state lawmakers next year. And like last year, most of them are already familiar.

 

Cybersecurity: Hacking of election infrastructure doesn’t appear to have been as much of a problem in last month’s midterm elections as it was in 2016. But other recent developments, most notably the massive Equifax data breach last year, continue to make cybersecurity one of the most active issues in state legislatures.

 

At least 35 states have considered more than 200 bills and resolutions dealing with cybersecurity in 2018, about a quarter of which have been enacted, according to analysis of LexisNexis State Net legislative data by the National Conference of State Legislatures. The number of introduced measures is down somewhat from last year, when there were 240 introductions in 42 states, but the number of enactments is about double the 24 in 2017. And this year’s numbers are well up from the 104 introductions and 24 enactments or adoptions in 28 states in 2016.

 

As in previous years, the measures cover a broad range of subjects, including election security, cybercrime penalties, cybersecurity education and training, data breaches, school cybersecurity, security practices at government agencies, cybersecurity of critical infrastructure, funding for cybersecurity programs, tax breaks for cybersecurity investment, requirements for cloud computer storage services and security of biometric information. And it’s unlikely that state lawmakers’ concerns about such issues will diminish much next year.

 

Internet/Data Privacy: Bills dealing with internet privacy have been considered in at least 24 states this session, according to NCSL. Most of those measures were introduced last year in response to the repeal of federal internet privacy protections. Many of the bills have failed. But there have been enactments in three states: California (AB 375), Oregon (HB 4155) and Vermont (SB 289). And measures are still pending in a few other states, including Massachusetts, New Jersey and New York.

 

The national outrage sparked by the news earlier this year that Facebook allowed the political consulting firm Cambridge Analytica to access the personal data of tens of millions of its users without their direct consent may also have given some impetus to state efforts to increase privacy protections for users of social media websites. Social media privacy measures are currently pending in at least four states, Illinois, Massachusetts, New York and Rhode Island, which also adopted a resolution (HR 8353) creating a commission to study the issue, according to LexisNexis State Net’s database.

 

Blockchain/Digital Currencies: Blockchain or “distributed ledger technology” - the technology behind bitcoin and other digital currencies that allows the exchange of virtually anything of value between two parties without the need for a third party to mediate it - is still an emerging legislative issue in the states.

 

But bills dealing with the issue have been introduced in at least a dozen states and enacted in five this year, according to LexisNexis State Net’s legislative tracking system. They include a measure enacted in Colorado (SB 86) concerning the use of blockchain technology to protect government records and a bill that failed in Nebraska (LB 694) that would have prohibited local governments from regulating or taxing blockchain technology.

 

With blockchain promising to bring changes as big as those brought by the Internet, more blockchain legislation is undoubtedly on the way.

 

Legislative activity specific to digital currencies like bitcoin, the form of blockchain technology most people are familiar with, however, is already prevalent in the states.

 

At least 20 states have introduced and six states have enacted bills or resolutions dealing with digital currencies in 2018, according to analysis by NCSL and State Net. That analysis also shows the volume of activity this year is about double what it was in 2017.

 

Much of the introduced and enacted legislation concerns the applicability of money transmission laws to virtual currencies or the addition of such currencies to laws governing unclaimed property.

 

But the measures also address a range of other issues, including the payment of taxes with digital currencies (Arizona SB 1091, Georgia SB 464, Illinois HB 5335, and New York AB 9782), which Ohio just became the first state to allow, although without legislative action; requirements for initial coin offerings, the crypto-world equivalent of initial public offerings (Arizona HB 2601); the addition of “cryptocurrency” to the definitions of certain crimes (Michigan HB 6253, HB 6254 and HB 6258); digital currency business development (New Jersey AB 1906 and New York AB 9862 and AB 11018); the exemption of cryptocurrencies from property taxes (Wyoming SB 111); and the taxation of virtual currency transactions (Vermont SB 269, as introduced, and Connecticut HB 5001).

 

All of this legislative activity has come in what has been a relatively quiet year for cryptocurrencies, with transaction volumes well down from their December 2017 peak, when the price of a single bitcoin shot up to $19,499, and the value of transactions on the Bitcoin network hit nearly $5.8 billion in a single day, almost a quarter of Visa’s average daily transaction value. It wouldn’t be too surprising to see state lawmakers’ interest in cryptocurrencies ratchet up even higher if there’s another spike in cryptocurrency prices.

 

Remote Sales Taxes: In June the U.S. Supreme Court ruled that a law passed in South Dakota in 2016 (SB 106) had freed it from a longstanding legal precedent barring states from imposing sales taxes on internet and mail-order retailers that didn’t have a physical presence within their borders. Since that decision in South Dakota v. Wayfair, only two other states, New Jersey (AB 4496) and Utah (SB 2001 a), have enacted economic nexus-based remote sales tax laws similar to South Dakota’s, although a few states passed such laws prior to the ruling, and 27 have begun enforcing economic nexus-based remote sales tax requirements that rely on existing statutes or regulations, according to information compiled by the Sales Tax Institute.

 

One major reason for the lack of legislative action on the issue this year is simply that a lot of states had adjourned their regular sessions before the Wayfair ruling was issued. But there are a number of considerations that may also have been giving states pause, including the prospect of litigation, which kept even South Dakota from enforcing SB 106 until five months after the Wayfair ruling, and aspects of South Dakota’s tax system singled out by the court in its decision, such as the state’s adoption of the Streamlined Sales and Use Tax Agreement, which only half of the 16 states that aren’t currently enforcing economic nexus sales tax requirements have signed onto.

 

Max Behlke, director of budget and tax policy for NCSL, said in a podcast after the Wayfair ruling that with both remote sales taxes and compliance with the federal tax changes enacted last year to attend to, “Next year is going to be a huge year for state and local tax activity in state capitals.”

 

Transportation/Technology Infrastructure: Oct. 1 was the 25th anniversary of the last time Congress increased the federal gas tax, the primary source of federal funding for highway and transit projects across the country. The tax has stood at 18.4 cents per gallon for unleaded fuel and 23.4 cents per gallon for diesel since that date back in 1993. And a divided Congress next year may be no more inclined to alter that situation. So states are likely to continue exploring their own sources of transportation funding, including not just gas tax hikes, which have come in 28 states since 2013, but also other options like public-private partnerships, which 17 states considered in 2018, and vehicle miles traveled (VMT) fees, considered by 11 states this year, according to NCSL’s transportation funding and finance state bill tracking database.

 

Bills facilitating the development of “small-cell” infrastructure needed to deploy the next generation of wireless technology, 5G, could also be popular in statehouses next year. Twenty states considered and nearly half of them enacted such legislation this year, according to NCSL.

 

Marijuana legalization: This year Vermont (HB 511) became the first state to legalize marijuana for adult recreational use through the legislative process rather than the ballot box, as in the other nine mostly blue states where recreational use has been legalized. A wave of legislative enactments in other states seems unlikely next year. But 21 states considered legalization measures this year, according to NCSL. And as a result of last month’s elections, seven more state governments will be entirely under Democratic control next year, including four where recreational marijuana use is not yet legal: Connecticut, Illinois, New Mexico and New York.