Crypto Industry Launches First Major Legal Challenge to Illinois’ Digital Asset Tax

The case centers on equal treatment, with challengers claiming blockchain users should not face different tax rules than traditional finance.

The Digital Chamber has filed a lawsuit to block Illinois’ upcoming crypto tax.

The industry advocacy group argues that the tax unlawfully targets blockchain transactions for discriminatory reasons.

Illinois Faces Legal Challenge Over Crypto Tax Law

Illinois’ Digital Asset Tax Act (DATA), scheduled to take effect on January 1, 2027, imposes a 0.02% levy on the full value of a digital asset every time it is transferred. The tax applies to crypto exchanges, wallet providers, and custodians based in the state or ones offering services that earn more than $100,000 in Illinois receipts.

The law is the first of its kind in the U.S., with critics who oppose it saying it would impose several layers of tax on a single transaction, which would, in turn, raise costs and discourage crypto activity in Illinois. Andreessen Horowitz crypto executive Miles Jennings even went as far as calling it one of the most “anti-crypto laws” in the United States.

TDC is now asking the court to stop enforcement of the tax provision, arguing that no one should be treated differently for transacting in digital assets. Furthermore, they say that the clause was added to the legislation the night before its final consideration, leaving no room for an actual hearing.

“Today we filed a suit in Sangamon County, IL, to stop the Digital Asset Tax Act..it was slipped into the budget the night before the final vote,” they wrote.

TDC’s members also want the judge to rule that the crypto tax violates state and federal constitutions and to award reimbursement for the crypto lobbying group’s legal fees and court costs.

Crypto Tax Unfairly Targets Blockchain Transactions

The lawsuit also notes that the legislation does not distinguish between transactions that make a profit and those that result in a loss. Instead, it treats transactions differently based on the technology used to record ownership.

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What this means is that digital asset transactions recorded on a blockchain are treated differently from those that use traditional financial systems, which, according to TDC, counts as unequal treatment. “No one should be taxed differently because of how ownership of digital assets is recorded or transferred,” they said.

Cody Carbone, CEO of TDC, says taxes should be carefully considered to ensure fairness of all involved, adding that the lawsuit aims to protect consumers and the group’s members.

While Illinois takes a more restrictive approach with the first crypto tax, other states like Texas and Florida are moving in the opposite direction by passing crypto-friendly legislation. In the case of Texas, it passed laws allowing Bitcoin to be held in state reserves, while Florida banned the use of Central Bank Digital Currencies (CBDCs) while also easing the rules for non-custodial crypto operators.