US DOJ, Business Groups and DeFi Firms Challenge Illinois Tax

The Tech TL;DR:

• The Illinois law imposes a 0.2 percent tax on traded, transferred, or stored digital assets regardless of whether transactions yield a profit.
• Federal officials and industry groups argue the measure creates severe compliance burdens and clashes with federal blockchain policies.

Passed in June, the legislation levies the tax on the value of digital assets regardless of realized gains.

The Digital Chamber filed a lawsuit in July against Illinois Attorney General Kwame Raoul and state financial official David Harris, followed by a separate challenge in August from the Blockchain Association and the Crypto Council for Innovation. Originally scheduled to take effect on January 1, 2027, the tax implementation was deferred to July 2027 to accommodate ongoing litigation.

In a court filing on November 6, the Securities Industry and Financial Markets Association (SIFMA) and the U.S. Chamber of Commerce warned that the tax in Illinois would affect banks, broker-dealers, custodians, and asset managers nationwide and potentially subject them to high compliance costs.

The associations said that firms would need to build custom software to track Illinois users, value tokens continuously, and filter taxable events, all under the threat of potential criminal penalties for technical non-compliance.

“That means that a customer who loses money owes the same tax as a customer who realizes a gain,” SIFMA and the Chamber of Commerce wrote in their filing. “And a customer who moves the same asset between two accounts faces a tax without a sale, gain, or change in economic ownership—potentially at both ends.”

The DOJ pointed to federal initiatives like the establishment of a strategic Bitcoin reserve and the GENIUS Act, suggesting that state-level penalties conflict with national regulatory frameworks.

A separate DeFi coalition, including venture capital firms Andreessen Horowitz and Paradigm alongside protocols Uniswap and Aave Labs, submitted a brief on November 11 through the Blockchain Association and the Crypto Council for Innovation. The coalition argued that the proposed rules wrongly impose tax collection duties on software developers and decentralized network participants who lack customer data, custody of user funds, or any practical mechanism to collect state taxes.

Illinois initially projected that the digital asset tax would generate 60 million U.S. dollars in fiscal year 2027. Speaker of the Illinois House of Representatives Emanuel “Chris” Welch previously defended the measure as a way to close corporate loopholes and require large tech entities to pay a fair share, according to Chicago Tribune reporting from July.

Legal arguments and court filings will proceed ahead of the postponed July 2027 effective date.

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