TDC Sues Illinois to Block Crypto Tax

TDC says Illinois' new 0.2% tax on digital asset transactions conflicts with state and federal rules. The case could set a precedent for other U.S. states that want to tax crypto separately.

Key Takeaways

• The Digital Chamber has sued Illinois to block the new Digital Asset Tax Act.
• The law adds a 0.2% tax on digital asset transactions for certain entities with more than $100,000 in gross revenue.
• TDC says the tax violates the state and federal constitutions and could have ripple effects for other U.S. states.

A crypto lobbying group is taking Illinois to court in an effort to stop a new tax on digital asset transactions. The Digital Chamber, or TDC, argues that the law runs afoul of both the U.S. and Illinois constitutions and is also blocked by federal tax law.

Tax Approved in a Rush

The dispute centers on the Digital Asset Tax Act, which was slipped into Illinois' budget at the last minute last month before being approved. The law imposes a 0.2% tax on digital asset transactions for entities based in Illinois or providing services there if they generate more than $100,000 (€87,600) in gross revenue. It is scheduled to go into effect in January.

TDC says the measure violates the uniformity and due process clauses of the Illinois Constitution, along with the Commerce Clause of the U.S. Constitution and the Internet Tax Freedom Act. In the lawsuit, the group is asking a federal judge to stop Illinois from enforcing the tax.

Why This Case Matters

The case could have broader implications for the U.S. crypto market because the law singles out digital asset transactions instead of treating them like traditional financial activity. In its complaint, TDC says the statute does not make a distinction between profits and losses, or between transfers that change ownership and those that do not. Instead, it draws a line between blockchain infrastructure and traditional systems.

That could make the ruling relevant for other states considering higher taxes or separate rules for crypto. The Digital Asset Tax Act also feeds into a wider debate over how much authority states have to regulate blockchain activity before they run into federal law. Illinois is not the only place where the industry is challenging new rules: in Kentucky, a similar dispute emerged over prediction markets after regulators and states clashed over who had the final say.