The Crypto Council for Innovation and the Blockchain Association filed a lawsuit challenging the State of Illinois’s Digital Asset Tax Act.
The Digital Asset Tax Act imposes a 0.2 percent tax on Illinois customers that receive digital asset business activity from a digital asset broker. This activity includes exchanges, transfers, and storing of digital assets. The tax is assessed on the value of underlying digital assets involved in the transaction.
Effective January 1, 2027, the tax resembles a transaction tax on gross receipts from digital asset transfers and requires digital asset brokers in Illinois to collect the tax on each sale. The tax mainly targets service providers including exchanges, custodians, and platforms that facilitate the exchange, transfer, or storage of digital assets as part of a business transaction.
The complaint claims that the Digital Asset Tax Act imposes a tax on digital-asset activities that is unprecedented nationwide. The suit alleges that the law punishes innovation and discriminates against digital-asset businesses and users.
“Digital assets are simply assets—that is, stores of economic value—that exist entirely on the internet, like Bitcoin. The Act taxes only digital-asset activities, and it does not work like any conventional tax. The Act taxes a percentage of the full value of an Illinois customer’s digital assets each time those assets are exchanged, transferred, or stored using a “digital asset broker.” That is so even if the customer buys nothing, sells nothing, gains nothing, and transfers no ownership. And the Act requires brokers to collect and remit the taxes on pain of criminal penalties, while demanding that Illinoisans pay the tax absent broker collection. Illinois does not tax any other assets in this way,” the complaint states.
The two groups are asking the court to declare the Digital Asset Tax Act unlawful and enter preliminary and permanent injunctive relief barring the state from enforcing it.
“This tax singles out digital assets for uniquely punitive treatment based on the underlying technology rather than the substance of the transaction itself. A tax on digital asset activity with no equivalent tax for traditional assets unlawfully picks winners and losers through the tax code. Additionally, this first-of-its-kind tax warranted careful study and public input, which did not happen. The significant number of Illinoisians, both individuals and businesses, who use or transact in digital assets were denied that opportunity,” Ji Hun Kim, CEO, Crypto Council for Innovation, said.
The groups contend that the tax violates the U.S. Constitution, including the dormant Commerce Clause doctrine, the Illinois Constitution, the federal Internet Tax Freedom Act, and the Illinois and federal Due Process Clauses.
“States have an important role to play in fostering innovation, but that authority has constitutional limits. Illinois cannot impose a novel tax regime that discriminates against digital commerce, creates uncertainty for consumers and businesses, and threatens to fragment a rapidly growing national market. Digital asset companies should be able to build and compete in the United States under clear, lawful rules—not navigate a patchwork of punitive state policies. We are bringing this challenge to protect those fundamental principles and ensure Illinois stays within the bounds of the law,” Summer Mersinger, CEO of Blockchain Association, said.
The suit was filed in the Circuit Court of Sangamon County.