Two crypto trade groups sued Illinois on Aug. 21 to block a first-in-the-nation 0.2% digital asset tax set to take effect Jan. 1, 2027. The Blockchain Association and Crypto Council for Innovation say the levy can tax trades, transfers and custody even when a customer buys, sells or gains nothing.
A Tax That Doesn't Wait for a Profit
The Blockchain Association and Crypto Council for Innovation filed a complaint on Aug. 21 in Sangamon County Circuit Court against Illinois Department of Revenue Director David Harris, Attorney General Kwame Raoul, and Sangamon County State's Attorney John Milhiser. They want the Digital Asset Tax Act declared unlawful, with injunctions blocking its enforcement.
Illinois' 0.2% levy applies to a digital asset's value whenever certain activities run through a broker — not to a customer's profit. As a result, according to the complaint: "buys nothing, sells nothing, gains nothing, and transfers no ownership" can still trigger the tax. Swapping bitcoin, moving it between accounts, or paying a company to custody it could all trigger the tax once it takes effect Jan. 1.
One Trade, Several Unanswered Questions
A single crypto purchase can involve an exchange, a transfer into the customer's account and ongoing custody by the platform, and the complaint says the law never clarifies whether that sequence creates one, two or three taxable events. Custody adds another layer of uncertainty because storage runs continuously rather than as a single event. The filing says the state never explains whether a year of custody counts once, whether every billing period counts separately, or whether a changing balance starts a fresh taxable event — a distinction the complaint says could swing tax bills by orders of magnitude.
The statute also leaves open when an asset's taxable value gets calculated: when an instruction is submitted, when a broker executes it, or when the transaction settles.
Brokers Face Penalties Over Murky Rules
Determining whether a customer is actually in Illinois creates a further trap. Account records, mailing addresses and IP addresses can trigger a presumption that a customer is in-state, and the broker then has to prove otherwise despite conflicting data. Brokers face civil and criminal penalties for getting compliance wrong, and the complaint notes some firms may cut off customers who could be in Illinois rather than risk felony liability.
A 1,624-Page Bill Fuels a Constitutional Fight
The lawsuit also targets how the tax became law. Senate Bill 3019 started as a two-page agricultural-finance measure before May 31 amendments expanded it into a 1,624-page package, with the Digital Asset Tax Act making up fewer than 20 of those pages. Lawmakers then gave the public roughly an hour's notice for committee hearings before the bill cleared both chambers within 24 hours, according to the complaint.
Plaintiffs also claim the tax violates the federal Internet Tax Freedom Act, the dormant Commerce Clause, and state and federal due-process protections, following an earlier suit brought by the Digital Chamber against Illinois in July. The immediate fight is over whether Illinois can begin enforcing the tax on Jan. 1, before businesses must register and start collecting.
Source: Bitcoin News
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