Industry Groups Challenge Illinois Digital Asset Tax Act

On August 21, two digital asset industry trade associations announced a lawsuit in the Circuit Court of Sangamon County challenging Illinois’s Digital Asset Tax Act. The Act, which takes effect January 1, 2027, imposes a 0.2% tax on the value of digital assets involved in certain exchanges, transfers, and storage activities conducted through digital asset brokers.

The complaint seeks declaratory and injunctive relief preventing Illinois officials from implementing or enforcing the Act. The plaintiffs allege, among other things, that the Act discriminates against electronic commerce in violation of the Internet Tax Freedom Act, improperly burdens interstate commerce, lacks clear compliance standards, and creates an unreasonable tax classification in violation of the Illinois Constitution’s Uniformity Clause. The complaint also challenges the Act’s incorporation of federal law into the definition of “digital asset broker” and alleges that the legislation was enacted through constitutionally defective procedures.

The plaintiffs seek preliminary and permanent injunctions preventing enforcement of the Act. No court has yet ruled on the merits of the allegations

Putting It Into Practice: The lawsuit comes as Illinois continues to expand its regulation of digital asset businesses, (previously discussed here). The challenge also highlights the potential for litigation as states develop digital asset-specific tax and regulatory regimes alongside an evolving federal framework. Digital asset businesses serving Illinois customers should monitor the litigation closely and assess potential registration, tax collection, recordkeeping, and systems changes ahead of the Act’s January 1, 2027 effective date.