Illinois' 0.2% Digital Asset Tax Draws New Legal Challenge from Crypto Trade Groups

Two U.S. cryptocurrency industry organizations have filed suit to stop Illinois' 0.2% tax on digital assets from taking effect on January 1, 2027, arguing the levy exceeds the state's authority and would sharply raise compliance costs for companies and users. The Blockchain Association and the Crypto Innovation Council lodged six claims in a 39-page complaint in the Sangamon County Circuit Court, seeking a declaration that the Digital Asset Tax Act is invalid and an order blocking enforcement. The lawsuit alleges the measure violates the U.S. Constitution, the Illinois Constitution and the federal Internet Tax Freedom Act. At issue is how the tax is structured. The complaint says the law applies to digital asset exchanges, transfers and custody services performed by "brokers," and calculates the tax on the full value of a client's digital assets tied to the service, rather than on transaction gains. Under that approach, the plaintiffs contend, users could owe tax even without selling assets or completing a change of ownership. The defendants include Illinois' tax commissioner and the state attorney general. The lawsuit's central objective is to prevent the law from taking effect in 2027. The plaintiffs also argue the statute is drafted too vaguely to let businesses and users determine which activities are taxable or who must collect and remit the tax. They say the risk of civil exposure and potential criminal penalties in severe cases is already driving affected firms to increase legal and tax spending. The complaint further warns of potential double taxation on interstate activity. It argues Illinois has not clearly confined its reach to in-state economic activity, and that regulators could deem a transaction to have occurred in Illinois based on factors such as a customer's address, account records, mailing information or IP address. Industry groups say other states could apply different standards to the same transaction, allowing a single transfer to be taxed by two jurisdictions. The lawsuit adds that Illinois does not offer a credit for similar taxes paid to other states, potentially making cross-state digital asset activity more expensive than transactions confined to one state. The tax was signed into law by Governor JB Pritzker in June as part of Illinois' $55.9 billion fiscal year 2027 budget. State budget documents estimate it will generate about $60 million per year. Under the statute, brokers providing digital asset exchange, transfer or custody services to customers in Illinois must pay a 0.2% "franchise tax" on the value of digital assets associated with the relevant business. Certain out-of-state brokers can also be pulled in if they generate at least $100,000 in revenue from Illinois customers over a 12-month period. Covered brokers must register, collect the tax separately from clients, keep transaction records and file monthly reports. If a broker does not collect on a client's behalf, the client must calculate the tax and remit payment to the tax authority by the 20th of the following month. The new filing is the second industry lawsuit targeting the same levy. The Digital Chamber sued in the same court in July, arguing Illinois is taxing digital asset transactions differently from comparable traditional-asset transactions. That case also challenges the legislative process, claiming the provisions were inserted into a large omnibus bill late in the session and that affected businesses received little to no notice despite prior public opposition from industry groups.