Digital Chamber challenges Illinois digital asset tax in court

The Digital Chamber sued the Illinois Department of Revenue on Tuesday, July 21, seeking to stop a new 0.2% tax on customers’ use of digital asset services before it takes effect on Jan. 1, 2027. The blockchain industry group said the levy, adopted as part of Illinois’ state budget, would raise compliance costs for its members and treat digital asset activity differently from other financial transactions.

The challenged measure, known as the Digital Asset Tax Act, applies to digital asset business activity involving services such as exchange, transfer and custody, according to The Digital Chamber. The tax is structured around customer use of those services rather than a realized investment gain, meaning the charge could apply even where an investor has not made a profit, the organization said.

In a press release announcing the lawsuit, The Digital Chamber said the law is already affecting member companies because they are spending money to prepare systems and procedures ahead of the 2027 start date. Firms with Illinois exposure may need to assess registration duties, customer activity, transaction records and reporting processes before the tax becomes effective.

Legal challenge focuses on differential treatment

The Digital Chamber argues that the Illinois provision is unfair because it distinguishes between people based on the way ownership is recorded or transferred. The group said that structure discriminates against people who use digital assets, because the tax applies to transactions involving digital asset infrastructure rather than comparable activity in traditional financial markets.

The organization also said the levy is broad enough to reach technology transactions beyond cryptocurrency activity, potentially including artificial intelligence and cloud-based transactions. That claim reflects the group’s view that the statutory language could capture digital systems used to record or transfer ownership, although the scope of the tax will depend on how Illinois implements and enforces the law.

“Today we are asking the courts to protect consumers and our members and stop this unfair tax in Illinois,” The Digital Chamber Chief Executive Cody Carbone said in the group’s release. “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.”

Industry groups criticize Illinois approach

The tax provision was passed as part of Illinois’ broader budget legislation, and it was added late in the legislative process, according to prior reporting cited by PYMNTS. The measure has drawn criticism from digital asset industry groups since its passage.

The Crypto Council for Innovation said in June that Illinois is the only state to adopt this type of transaction-based tax on digital assets. The council also said Illinois does not impose an equivalent transaction tax on stocks, bonds or derivatives, and described the measure as “the most punitive digital asset tax in the country.”

Jones Day, the law firm, said in a June commentary that brokers with any Illinois exposure should start preparing for registration and review their recordkeeping before the Jan. 1, 2027, effective date. That preparation would be part of the operational work required to identify taxable activity, maintain records and comply with any filing obligations tied to customers’ use of digital asset services.

The lawsuit places Illinois’ digital asset tax in front of the courts before companies must begin collecting or remitting the levy. The Digital Chamber is asking the court to halt the measure, while Illinois’ implementation timetable remains set for the start of 2027 unless the court or state officials intervene.

This story draws on original reporting from PYMNTS.