Illinois' new tax on digital asset transactions would likely prove difficult to administer should it stand up to legal challenges, tax and legal experts told Sandmark, after the crypto industry sued to block the measure.
Illinois Digital Asset Tax Faces Legal, Compliance Questions
22 July 2026 - 22:38 CEST
By Jona Jaupi
The Digital Chamber, the US-based blockchain trade association, sued Illinois on 21 Jul to block the Digital Asset Tax Act, also known as Senate Bill 3019. Illinois lawmakers passed the measure on 16 Jun 2026, and it is scheduled to take effect on 1 Jan 2027.
"The Digital Asset Tax is a predatory, unjust money grab aimed at our members," Cody Carbone, Digital Chamber CEO, said in a statement announcing the filing of the suit.
The complaint argues the law's 0.2% tax discriminates against digital asset transactions by treating them differently from similar traditional financial transactions, violating the Illinois and US constitutions as well as the federal Internet Tax Freedom Act.
"No one should be taxed differently because of how ownership of digital assets is recorded or transferred," Carbone said.
Experts said the case raises both legal and practical questions. While the lawsuit challenges the tax's constitutionality, they said the law could also create significant compliance burdens for businesses and the state.
A "puzzling" law
"The new Illinois tax is puzzling," said Professor Annette Nellen, director of San José State University's graduate tax programme and chair of the American Institute of Certified Public Accountants' Digital Assets Tax Task Force.
"Of all possible revenue sources, creating a new one on a small number of transactions that will place new burdens on digital asset brokers and the state tax agency, is puzzling," she told Sandmark.
Nellen said the tax would create significant compliance work for brokers and state tax officials while generating relatively little revenue compared with Illinois' income or sales taxes.
According to the state's FY2025 Comptroller Report, individual income taxes generated $28.2bn and sales taxes brought in $10.6bn in general funds revenue.
She said the Illinois Department of Revenue would also need to create new guidance, forms and audit procedures before the law takes effect. Meanwhile, brokers would need to track Illinois customers to determine when they must collect the tax.
Fairness concerns
The lawsuit also argues the tax applies to customers of digital asset brokers but not to comparable transactions that do not involve brokers.
Nellen echoed the Digital Chamber's Carbone, saying the tax could create an uneven playing field because customers using brokers would pay the tax, while those using decentralized platforms without brokers would not.
"Since the tax is collected from the customer, there is an equity issue in that digital asset holders not using a broker don't have the tax imposed on their transactions where the same transaction via a broker will have the tax," Nellen said.
Constitutional challenges
Patrick Quinn, partner and chair of the distributed ledger technology practice at Cullen and Dykman LLP, said the lawsuit's strongest argument is that Illinois is taxing digital assets differently even though they provide the same economic rights as traditional assets.
He also said the lawsuit could have a strong argument under the Dormant Commerce Clause because digital asset transactions can cross state lines, potentially exposing them to multiple state taxes. The law applies to digital asset brokers in Illinois as well as out-of-state firms that generate at least $100,000 in annual receipts from Illinois customers.
Quinn said the plaintiffs have a strong case overall, but the outcome will still depend on factors such as the complexity of the case and the attorneys' arguments.
The legal challenge comes as the US Congress is considering the CLARITY Act, which would create a federal framework for digital assets and clarify whether the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) oversees certain crypto assets.
An Illinois Department of Revenue spokesperson declined to comment, citing the pending litigation.
"The suit was just filed yesterday, and any comments at this time would be premature," Illinois Department of Revenue Director David Harris said in a statement shared with Sandmark.
The Digital Chamber did not immediately respond to a request for further comment.
