On March 1, 2023, the Utah Legislature passed a new law that gives legal recognition and limited liability to Decentralized Autonomous Organizations (DAOs) known as the “Utah Decentralized Autonomous Organizations” Act or the “Utah DAO Act.”

This landmark move is a combined effort of the Utah Legislature’s Blockchain and Digital Innovation Task Force, led by Co-Chairs Senator Kirk Cullimore and Representative Jordan Teuscher.

The state is becoming a technology hub for on-chain, decentralized, Web3 software platforms, and financial services. With the passing of this new law, the state recognizes the importance of DAO and aims to provide legal recognition and limited liability to these organizations. The act is a significant step forward in making Utah a more attractive location for businesses and individuals looking to participate in decentralized finance (DeFi) and other blockchain-based innovations.

On March 1, the Utah DAO Act passed both the Senate and House committees. Bylaws protect DAO-compliant anonymity and define ownership of DAOs. In addition, quality assurance protocols are introduced to ensure clear nuances in tax treatment.

The Utah DAO Act is based on the COALA DAO Model Law, which is considered a leading framework for DAOs. Joni Pirovich, a blockchain and digital assets tax adviser who worked with the Digital Innovation Taskforce, tweeted: “This is a huge step for DAO innovation, and will become effective from January 2024.”

The legislation is designed to provide the utmost flexibility for innovation, in recognition that DAOs are transnational entities that need technological protections equivalent to manual reporting requirements.

However, there were some significant concerns raised by the Utah Blockchain Legislature, and compromises were made to pass the act. The concern about anonymity and unaccountability of DAOs was addressed by requiring them to reveal the incorporator while maintaining anonymity.

Also, the original tax language used was found to be incompatible with federal and state tax realities, so the Utah Tax Commissioner proposed a compatible tax language. Lastly, the bill was delayed until 2024 due to concerns that there would not be enough ramp-up time for the Utah Division of Corporations to handle new applications.