Crypto lobby sues Illinois over 0.2% digital asset tax: ‘Violates state constitution’

Crypto lobby group The Digital Chamber (TDC) has moved to block Illinois state’s 0.2% blanket digital asset tax rule. 

In a lawsuit filed in Sangamon County, Illinois, the trade group argued the move would “address the unfair tax burden” the crypto tax rule would impose on users and businesses in the state.

Cody Carbone, the TDC CEO, added that, 

Taxes should be carefully considered, not only for the revenue they produce but for the fairness of those being taxed. That was not the case here, as the provision slipped into legislation the night before the bill’s final consideration.

The Illinois law, set to become effective from January 2027, slaps a 0.2% tax on any crypto transactions. This applies to gross transaction value. In fact, it does not take into account whether you made a loss or profit or moved funds between your wallets.

Besides, you still have to pay the typical capital gains tax on top of this fee, making it one of the most punitive crypto tax regimes in the U.S. 

Initially, the industry slammed the state for the crypto tax policy. Even state representative John Cabello introduced a measure to repeal the tax law, citing a lack of public committee hearing before its passage. 

Beyond mere rhetoric from the industry, The Digital Chamber is the first one to make a legal push to remedy the situation. In the lawsuit, the trade group argued, 

Plaintiff accordingly seeks a declaration that the Act is invalid and an injunction against its enforcement, because the Act violates the Illinois Constitution, burdens interstate commerce and is preempted by the Internet Tax Freedom Act.

The U.S. push for a federal crypto tax regime remains uncertain

The U.S. currently has no single federal crypto tax regime, leaving states to chart their own path for the same.  However, there is a congressional push for crypto tax clarity, including treatment of mining and staking. 

The recent proposals in the House were supported by the industry. In fact, the sector wants the bills to be passed as they are.

As of writing, the proposals have not even cleared the committee vote. Given the tight window ahead of the November elections, the tax bills may be delayed until next year. 

Final Summary

• The crypto trade group, the Digital Chamber (TDC), has filed to block the Illinois crypto tax rule. 
• A renewed push for the federal crypto tax regime could happen after the November midterm elections.