The Digital Chamber Sues the State of Illinois Over First-Ever 0.2% Crypto Tax

The Digital Chamber, a crypto trade association, has sued the state of Illinois over its new Digital Asset Tax Act, becoming the first industry group to challenge what is the nation’s first state-level tax targeting crypto business activity.

The lawsuit, filed in Sangamon County circuit court on July 21, seeks to block the 0.2% tax on digital asset business activity before it takes effect on January 1, 2027. Illinois Governor JB Pritzker signed the measure into law on June 16 as part of the state’s roughly $56 billion fiscal year 2027 budget. The tax applies to firms based in Illinois or serving Illinois customers with gross receipts of at least $100,000 a year, covering exchanges, transfers, or storage of digital assets. The state projects the tax will raise approximately $60 million annually.

A key issue is that the tax is charged on gross transaction value, not net gains. The Digital Chamber’s complaint notes that the law “does not distinguish between gains and losses, between profitable and unprofitable” trades, meaning a firm could owe tax on activity that produced no profit or even a loss.

The Digital Chamber argues the tax violates the Illinois Constitution’s uniformity and due process clauses, the U.S. Constitution’s Commerce Clause, and the federal Internet Tax Freedom Act (ITFA), which generally bars states from discriminating against internet-based transactions. The complaint states that the law “distinguishes only between traditional financial infrastructure and blockchain infrastructure,” taxing digital asset activity while leaving similar traditional finance transactions untouched.

Industry voices had already warned against the tax. a16z Crypto’s Miles Jennings called it “one of the most anti-crypto laws in the U.S.,” and both the Crypto Council for Innovation and the Illinois Blockchain Association urged lawmakers to repeal the provision. Those warnings went largely unheeded.

This lawsuit could become a test case for other states considering similar taxes. If a handful of states adopt gross-receipts-style crypto taxes, the Digital Chamber’s legal challenge may serve as a template for industry groups to fight such bills elsewhere.

No case number has been made public, and Illinois officials have not yet responded to the complaint. With roughly five months until the law takes effect, the court has a narrow window to rule.

Source: https://news.bitcoin.com/illinois-digital-asset-tax-act-lawsuit-digital-chamber/