Crypto lobby sues Illinois, says blockchain tax violates Constitution

The Digital Chamber has challenged Illinois’ new 0.2% digital asset transaction tax in court, arguing that the law unfairly targets blockchain-based commerce and violates constitutional protections.

Summary

• The Digital Chamber has sued Illinois to block its 0.2% tax on digital asset transactions before it takes effect in 2027.
• The trade group argues the law unfairly taxes blockchain based transactions differently from similar financial activity.
• The lawsuit adds to growing industry opposition after crypto firms and federal officials criticized the Illinois tax.

According to a complaint filed Tuesday in an Illinois circuit court, crypto trade association The Digital Chamber (TDC) is seeking to block the state’s Digital Asset Tax Act before it takes effect on Jan. 1, 2027

The organization argues that Illinois has singled out digital assets by imposing a transaction tax based on the technology used to record and transfer ownership rather than on the underlying economic activity.

The lawsuit asks the court to declare the law “void and unenforceable,” contending that it violates the U.S. Constitution and should not be allowed to move forward.

Trade group challenges technology-specific tax

In a statement accompanying the filing, The Digital Chamber CEO Cody Carbone said the organization is not asking for favorable treatment but for equal treatment under the law.

Carbone said taxes should be designed with fairness in mind alongside revenue generation, adding that the crypto tax provision was inserted into legislation the night before lawmakers gave the budget final approval. He said the organization filed the case to protect consumers and its members from what it described as an unfair tax.

The 32-page complaint argues that economically identical transactions should not receive different tax treatment simply because ownership is recorded or transferred through blockchain technology. According to the filing, taxing digital assets differently from other financial assets creates an unequal legal framework.

The organization also warned that allowing Illinois to proceed could encourage similar policies elsewhere. In its complaint, TDC argued that if states are permitted to impose additional taxes because commerce occurs through blockchain infrastructure, future lawmakers could extend similar treatment to transactions settled using artificial intelligence systems, cloud-based payment networks, or other emerging technologies while leaving equivalent transactions conducted through older systems untaxed.

TDC’s membership includes more than 250 companies and organizations worldwide, including Anchorage Digital, Chainlink Labs, and Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange.

Industry opposition has continued since budget approval

The lawsuit follows months of criticism after Illinois lawmakers approved the Digital Asset Tax Act as part of the state’s $55.9 billion fiscal 2027 budget, which Governor JB Pritzker signed into law in June. State budget documents previously estimated the measure could generate roughly $60 million in annual revenue.

The law introduces a 0.2% tax on covered digital asset activity carried out by brokers, including exchange, transfer, custody, and wallet services. Unlike traditional capital gains taxes, several industry groups have argued that the Illinois measure applies to the transaction itself rather than to income or profits generated from digital assets.

Before the budget became law, The Digital Chamber and the Illinois Blockchain Association jointly urged state officials to remove the proposal, saying lawmakers introduced the provision without advance notice during the budget process instead of advancing it through standalone legislation.

Separately, the Crypto Council for Innovation requested that Governor Pritzker use a line-item veto to remove the crypto tax provision before signing the budget. The organization argued that the measure targets blockchain technology itself and compared the approach to taxing correspondence because it is delivered through email instead of traditional mail.

Miles Jennings, head of policy and general counsel at a16z Crypto, also criticized the legislation after its passage, saying no comparable state financial transaction tax exists for stocks, bonds, or derivatives in the United States.

Compliance questions remain before 2027 launch

While the lawsuit focuses on the legality of the tax, implementation questions have continued to draw attention across the industry.

According to tax advisory firm BDO, the law requires digital asset brokers to register with the Illinois Department of Revenue before conducting covered activity once the rules take effect on Jan. 1, 2027. Brokers must collect the tax as a separate line item, maintain transaction records, and submit monthly reports covering the previous month’s activity.

BDO has also said the law may apply to companies located outside Illinois if they generate at least $100,000 in annual receipts from customers in the state. Customer records, mailing addresses, IP addresses, account information, and other location data may all be used to determine whether activity falls under Illinois sourcing rules.

Legal uncertainty has also emerged around routine blockchain activity. After the legislation passed, litigator Joe Carlasare questioned how ordinary wallet transfers would be treated, asking whether moving Bitcoin from self-custody to an exchange before selling it could create one taxable event or multiple taxable transactions.

Federal officials have also criticized the measure

The court challenge comes weeks after Commodity Futures Trading Commission Chair Michael Selig publicly criticized the Illinois tax.

In a July statement, Selig said Illinois lawmakers had “slammed the brakes on technological progress” by approving the measure. He argued that blockchain networks could transform the movement of financial assets in much the same way the internet transformed the movement of information, warning that taxing crypto transfers differently from other financial activity could leave businesses and residents at a disadvantage.

Selig also said Illinois had moved ahead while federal lawmakers continue debating national digital asset market structure and tax policy. Congress is reviewing several crypto-related tax proposals covering areas including stablecoin payments, staking rewards, mining income, decentralized finance lending, wash-sale rules, charitable donations, and taxpayer disclosure requirements, while the Securities and Exchange Commission and the CFTC are conducting a joint review of crypto market regulations.

Against that backdrop, The Digital Chamber’s lawsuit moves the dispute from policy debate to the courts. If successful, the case could determine whether Illinois can enforce a technology-specific transaction tax before the law is scheduled to take effect at the beginning of 2027.