Illinois has introduced a 0.2% tax on cryptocurrency transactions, with the measure scheduled to come into force next year.
A crypto advocacy organization has taken legal action against Illinois, challenging a digital asset tax rule that was added to the state budget shortly before lawmakers ended their legislative session.
The Digital Chamber claims that the state’s Digital Asset Tax Act violates protections under both the U.S. and Illinois constitutions and conflicts with existing federal tax law. The group filed a lawsuit on Tuesday seeking a court order that would stop Illinois from implementing the tax.
The complaint argues that the tax breaches Illinois’ constitutional requirements for equal and fair taxation, as well as the U.S. Constitution’s Commerce Clause and the Internet Tax Freedom Act by singling out digital asset transactions for separate treatment.
Lawmakers approved the Digital Asset Tax Act on an expedited timeline near the end of the legislative session. The 0.2% levy applies to businesses operating in Illinois or offering services that generate more than $100,000 in gross revenue. The tax is scheduled to begin in January.
The Digital Chamber argues that the Internet Tax Freedom Act prevents state and local governments from imposing discriminatory taxes on electronic commerce, making the Illinois measure legally questionable.
The lawsuit states that the law does not account for differences between profitable and losing transactions, realized and unrealized gains, or transfers that involve a change in ownership versus those that do not. Instead, it claims the legislation draws a distinction based primarily on whether transactions rely on traditional financial systems or blockchain technology.
The filing further argues that federal law separates the nature of an asset from the infrastructure used to track ownership, and that no other legal framework creates a tax distinction based solely on the technology supporting recordkeeping.
The lawsuit, filed on behalf of Digital Chamber members, asks the court to rule that the Illinois crypto tax violates both state and federal constitutional protections, block enforcement of the law, and require the state to cover related legal expenses.
