Two major cryptocurrency trade groups have initiated legal action against Illinois over a first-in-the-nation 0.2% tax on digital asset trades, transfers, and storage. The Digital Asset Tax Act is currently scheduled to take effect on January 1, 2027.
The Blockchain Association and the Crypto Council for Innovation filed their complaint in the Sangamon County Circuit Court. The lawsuit targets Illinois Department of Revenue Director David Harris, Attorney General Kwame Raoul, and Sangamon County State’s Attorney John Milhiser, seeking to have the tax declared unlawful alongside preliminary and permanent injunctions to halt its enforcement.
Concerns Over Taxation Mechanics and Ambiguity
Unlike traditional levies based on customer profits, the Illinois law applies a 0.2% tax on the value of a digital asset when specific activities are processed through a digital asset broker. According to the court filing, the tax can be triggered even when a customer experiences no financial gain, makes no purchase, and transfers no ownership.
The plaintiffs argue that the statute creates unequal treatment compared to traditional financial property, noting that Illinois does not impose an equivalent transaction tax on purchasing stocks, wiring money between personal accounts, or storing cash, gold, or securities with a bank. Furthermore, the complaint highlights a lack of clarity regarding whether multi-step actions—such as a single purchase that involves an exchange, transfer, and custody—constitute multiple taxable events, how continuous custody storage should be billed, and how an asset's taxable value must be calculated.
Compliance Burdens and Legislative Process Challenged
The lawsuit details significant compliance traps for brokers, who must determine whether a customer resides in Illinois based on IP addresses, mailing addresses, or account records. Brokers face potential civil and criminal penalties, including felony liability, for compliance errors. Consequently, the filing notes that some firms may decide to restrict customers who could be located in Illinois rather than assume the legal risk.
The plaintiffs also challenge the legislative process behind the law. Senate Service Bill 3019 originally began as a concise agricultural-finance measure before being expanded into a 1,624-page package during May amendments, with the Digital Asset Tax Act comprising fewer than 20 pages. The complaint alleges that the public received only about an hour of notice for committee hearings before the legislature passed the bill within 24 hours, violating Illinois constitutional requirements.
Additional legal claims assert that the tax violates the federal Internet Tax Freedom Act by discriminating against electronic commerce, breaches the dormant Commerce Clause, and runs counter to state and federal due-process protections and the Illinois Uniformity Clause. This legal challenge follows an earlier lawsuit filed against Illinois by the Digital Chamber in July.
