Illinois’ plan to levy a 0.2% tax on digital asset transactions has been hit with a major legal challenge, with a leading crypto trade group asking a state court to strike down what it calls a “technology-targeted” levy before it ever takes effect.
The Digital Chamber (TDC), which represents more than 250 companies worldwide, has filed a 32-page complaint in an Illinois circuit court seeking to block the state’s Digital Asset Tax Act, due to come into force on 1 January 2027.
The group argues the measure is unconstitutional because it taxes transactions purely on the basis that they are recorded or settled on blockchain infrastructure, rather than on the nature of the economic activity itself.
‘We are asking for equal treatment’
The lawsuit calls on the court to declare the law “void and unenforceable”, contending that it breaches protections in the US Constitution and should not be allowed to proceed.
In a statement accompanying the filing, The Digital Chamber’s chief executive, Cody Carbone, said the organisation was not seeking preferential treatment for crypto markets.
Carbone said the group was asking only for digital asset activity to be treated on the same footing as comparable financial transactions, and argued that any tax regime should be built around fairness as well as revenue collection. He added that the crypto provision was inserted into a budget bill the night before lawmakers gave final approval, and said the case had been brought to shield consumers and TDC members from what it views as an unjust levy.
The complaint maintains that economically equivalent trades should not face different tax rules simply because they use blockchain to record or transfer ownership. According to the filing, taxing digital assets differently from other financial instruments creates a distorted and unequal legal framework.
Fears of wider ‘technology taxes’
TDC also warns that allowing Illinois to press ahead could open the door for other states to impose extra charges on activities conducted via newer technologies.
The complaint argues that if a state may impose a special tax purely because commerce is conducted through blockchain, future lawmakers could seek to apply similar treatment to payments routed through artificial intelligence tools, cloud-based systems or other emerging platforms – while leaving comparable activity carried out on legacy systems untouched.
The Digital Chamber’s membership includes Anchorage Digital, Chainlink Labs and Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange.
Part of a $55.9bn budget plan
The disputed measure was approved earlier this year as part of Illinois’ $55.9bn budget for the 2027 fiscal year, which Governor JB Pritzker signed into law in June. State budget documents estimate the tax could raise about $60m annually.
Under the act, brokers handling covered digital asset business – including exchange, transfer, custody and wallet services – must apply a 0.2% charge on each relevant transaction. Industry associations say that, unlike traditional capital gains rules, the Illinois measure is aimed at the transaction itself, not at income or profits derived from digital assets.
Before the spending plan was finalised, The Digital Chamber and the Illinois Blockchain Association jointly urged state officials to remove the tax proposal, saying it had been added without prior public debate as part of the budget process, rather than brought forward as standalone legislation.
Separately, the Crypto Council for Innovation asked Governor Pritzker to use his line-item veto to strip out the provision. It argued the approach effectively taxes blockchain technology itself, likening it to imposing a separate levy on correspondence simply because it is sent by email rather than traditional post.
Miles Jennings, head of policy and general counsel at a16z Crypto, also criticised the legislation after its passage, saying there is no equivalent state-level financial transaction tax for stocks, bonds or derivatives in the US.
Complex compliance questions
While the court case focuses on constitutional issues, businesses are already grappling with practical questions over how the law would work if it survives.
Tax advisory firm BDO says digital asset brokers would have to register with the Illinois Department of Revenue before carrying out covered activities once the rules begin on 1 January 2027. They would also need to itemise the tax separately, keep detailed records and file monthly returns on the prior month’s transactions.
According to BDO, the law may reach beyond state borders, potentially applying to firms based outside Illinois if they derive at least $100,000 a year in receipts from customers in the state. Customer data such as mailing addresses, IP addresses, account details and other indicators could be used to determine whether activity falls under Illinois sourcing rules.
Lawyers have also flagged uncertainty around ordinary blockchain behaviour. After the measure was adopted, litigator Joe Carlasare questioned how routine wallet movements would be treated, asking whether moving Bitcoin from self-custody to an exchange before selling it might trigger one taxable event or several.
Top regulator warns of ‘brakes on progress’
The challenge comes weeks after Commodity Futures Trading Commission Chair Michael Selig publicly condemned the Illinois tax.
In a statement in July, Selig said Illinois lawmakers had “slammed the brakes on technological progress” by approving the measure. He argued that blockchain networks have the potential to reshape the transfer of financial assets in much the same way that the internet transformed the flow of information, and warned that taxing crypto transfers differently from other financial activity could disadvantage businesses and residents in the state.
Selig also highlighted that Illinois has moved independently while federal lawmakers are still debating nationwide rules on digital asset market structure and taxation. Congress is considering several crypto-related tax proposals covering areas such as stablecoin payments, staking rewards, mining income, decentralised finance lending, wash-sale rules, charitable donations and reporting obligations, while the Securities and Exchange Commission and the CFTC are running a joint review of crypto regulation.
Against that backdrop, The Digital Chamber’s lawsuit shifts the fight over Illinois’ crypto levy from the political arena into the courts. The eventual ruling could determine whether states may enforce technology-specific transaction taxes as the digital asset industry matures – and whether Illinois’ experiment survives past 2026.
