Blockchain groups sue Illinois over 0.2% digital asset tax

Blockchain groups sue Illinois over 0.2% digital asset tax

The Blockchain Association and the Crypto Council for Innovation filed a lawsuit on Aug. 21 in the Circuit Court of the Seventh Judicial Circuit in Sangamon County, Illinois, challenging the state's new 0.2% digital asset tax. The tax, which is scheduled to take effect Jan. 1, 2027, applies to the value of covered customer digital-asset activity, not to gains or broker service fees.

The complaint names Illinois Department of Revenue Director David Harris, Attorney General Kwame Raoul, and Sangamon County State's Attorney John Milhiser in their official capacities. The plaintiffs are seeking a declaration that the Digital Asset Tax Act is invalid, along with preliminary and permanent injunctions to block its implementation and enforcement.

The lawsuit alleges seven counts: preemption under the federal Internet Tax Fairness Act, violations of the Commerce Clause, violations of federal and state due process protections, and breaches of Illinois constitutional rules on tax uniformity, delegation, and the legislative process. These are allegations, not judicial findings.

The filing is the second industry lawsuit against the tax. The Digital Chamber announced a separate challenge in the same court about a month earlier, on July 21. The two complaints have different captions and defendant lineups, and no joint schedule or consolidation has been reported. The Blockchain Association-CCI complaint's case-number field is blank.

The filing does not suspend the law. Unless a court grants an injunction, the tax remains in effect as scheduled.

What the tax requires

The statute taxes an Illinois customer's receipt of covered digital asset business activity at 0.2% of the value of the asset involved. Covered activity includes exchanging, transferring, or storing a digital asset as part of a business or on behalf of a customer who agreed to receive those services. The tax also covers transfers between wallets controlled by the same customer.

For remote brokers, collection nexus applies when gross receipts from covered activity to Illinois customers reach at least $100,000 over the preceding 12 months, tested quarterly. If a broker does not charge the tax, the customer must remit it by the 20th day of the following month.

Brokers must begin collecting the tax by Jan. 1, 2027, with initial remittances due in February 2027. The state has estimated the tax could generate approximately $60 million annually.

Legislative response

The lawsuit comes as some state lawmakers are seeking to repeal the tax. Republican state Representative John Cabello introduced House Bill 5798 on June 22 to repeal the Digital Asset Tax Act immediately. The bill has not advanced beyond its filing stage, with no committee vote or floor vote.

Outlook

The case is now in the hands of the court. The plaintiffs are asking for preliminary injunctions, but judges have not yet ruled on those requests or set any schedule. Until a court decides otherwise, the tax is scheduled to take effect Jan. 1, 2027, and brokers and customers may need to prepare for compliance.