Two major cryptocurrency industry groups have sued Illinois in an attempt to stop a new 0.2% tax on digital asset transactions, transfers and custody services before it takes effect on 1 January 2027.
The Blockchain Association and Crypto Council for Innovation filed their complaint on 21 August in Sangamon County Circuit Court. The action names Illinois Department of Revenue Director David Harris, Attorney General Kwame Raoul and Sangamon County State’s Attorney John Milhiser as defendants.
The groups are asking the court to declare the Digital Asset Tax Act unlawful and issue both preliminary and permanent injunctions preventing the state from enforcing it.
At the centre of the dispute is the way Illinois intends to calculate the levy. Unlike a conventional tax on profit or capital gains, the law would impose a charge equal to 0.2% of a digital asset’s value when certain activities are carried out through a digital asset broker.
The complaint argues that the tax could apply even when a customer “buys nothing, sells nothing, gains nothing, and transfers no ownership.”
Under the legislation, activities such as exchanging bitcoin, moving a digital asset between accounts or paying a company to hold it in custody could all result in a tax charge. The trade groups say Illinois has previously treated digital assets in a similar way to other financial property, meaning income or capital gains could be taxed while the underlying transfer or custody service generally was not.
That position is due to change on 1 January.
The plaintiffs argue that Illinois does not impose a comparable transaction tax on people who buy shares, transfer money between their own accounts, or store cash, gold or securities with a bank or broker. In their view, the new law taxes the infrastructure used to move or hold value rather than the economic transaction itself.
The complaint also raises concerns about situations in which one platform provides several services at the same time. A single cryptocurrency purchase might include an exchange, a transfer into the customer’s account and continuing custody by the platform. The groups say the legislation does not make clear whether that sequence represents one taxable event, two or three.
Custody arrangements could be particularly difficult because they continue over time. The filing says Illinois has not explained whether 12 months of custody would count as one taxable occurrence, whether each billing period would create a new liability, or whether changes in the account balance would trigger further taxable events. The groups claim the choice could alter bills “by orders of magnitude.”
The statute also fails, according to the complaint, to set out precisely when an asset’s taxable “value” should be determined. It is unclear whether valuation should take place when a customer submits an instruction, when a broker carries it out or when the transaction settles.
Determining whether a customer is located in Illinois is another area of uncertainty. Account records, postal addresses, IP addresses and other information could create a presumption that a customer is in the state. Brokers would then have to prove otherwise, with conflicting data potentially leaving companies to make uncertain judgements.
The consequences of an incorrect decision could be severe. The complaint says brokers may face civil and criminal penalties, including felony liability, for failing to comply. Businesses are already spending money on lawyers, tax advisers and software changes ahead of the law’s implementation.
The plaintiffs warn that some companies could decide to refuse service to customers who might be located in Illinois rather than risk prosecution.
The groups are also challenging the way the tax was passed. Senate Bill 3019 began as a two-page agricultural-finance proposal, but amendments introduced before 31 May expanded it into a 1,624-page package covering a wide range of subjects. The Digital Asset Tax Act accounts for fewer than 20 pages of the final bill.
According to the complaint, lawmakers gave the public about an hour’s notice of committee hearings before the legislation passed through both chambers within 24 hours. The plaintiffs argue that this process breached constitutional requirements in Illinois and produced a law backed by felony penalties despite leaving key obligations unclear.
The lawsuit further alleges that the tax violates the federal Internet Tax Freedom Act by discriminating against electronic commerce. It also cites the dormant Commerce Clause, state and federal due-process protections, the Illinois Uniformity Clause and alleged failures in the legislative process.
The groups say any one of those arguments could be sufficient to invalidate the law.
The case follows a lawsuit filed against Illinois by the Digital Chamber in July. The source article also refers repeatedly to a federal lawsuit against Illinois filed by the U.S. Commodity Futures Trading Commission and the Department of Justice, although no further details of that action are provided.
The immediate issue is whether the state will be allowed to begin enforcement on 1 January. The Blockchain Association and Crypto Council for Innovation want a court order blocking the tax before businesses are required to register and begin collecting it.
The proceedings will determine whether Illinois can impose a special tax on financial activity because it is conducted through digital assets.
