The Digital Chamber Sues the State of Illinois Over First-Ever 0.2% Crypto Tax

The Digital Chamber, a crypto trade association led by CEO Cody Carbone, sued the state of Illinois over its new Digital Asset Tax Act, becoming the first industry group to challenge the nation’s first state-level tax targeting crypto business activity.

The law imposes a 0.2% tax on “digital asset business activity,” covering the exchanging, transferring, or storing of digital assets. It applies to firms based in Illinois or serving Illinois customers with gross receipts of at least $100,000 a year, and the state projects it will raise roughly $60 million annually once fully in effect.

Even more importantly, the tax is charged on gross transaction value rather than net gains. The Digital Chamber’s complaint notes the law “does not distinguish between gains and losses, between profitable and unprofitable” trades, meaning a firm could owe tax on activity that produced no actual profit, or even a loss, simply because a transfer occurred.

Carbone has postured the lawsuit as a consumer-protection fight as much as an industry one. “Today we are asking the courts to protect consumers and our members and stop this unfair tax in Illinois,” he said. The Digital Chamber also says the taxing provision “slipped into legislation the night before the bill’s final consideration,” giving the industry little chance to respond before it passed.

The complaint rests on three legal arguments, i.e. that the tax violates the Illinois Constitution’s uniformity and due process clauses, that it runs afoul of the U.S. Constitution’s Commerce Clause by burdening interstate commerce, and that it conflicts with the federal Internet Tax Freedom Act (ITFA) (a law that generally bars states from taxing internet-based transactions in a discriminatory way).

The complaint states plainly that the Illinois law “distinguishes only between traditional financial infrastructure and blockchain infrastructure,” taxing digital asset activity while leaving functionally identical traditional finance transactions untouched.

When Pritzker signed the bill in June, a16z Crypto’s Miles Jennings called it “one of the most anti-crypto laws in the U.S.,” and both the Crypto Council for Innovation and the Illinois Blockchain Association had already urged lawmakers to repeal the provision before it went into force.

That earlier warning largely went unheeded, and Illinois’ tax now stands as a test case other states will be watching closely. If a handful of legislatures decide gross-receipts-style crypto taxes are a viable new revenue source, the Digital Chamber’s lawsuit could become the template industry groups use to fight similar bills before they reach a governor’s desk elsewhere.

No case number has been made public, and Illinois officials have not issued a public response to the complaint. The state has roughly five months before the law is scheduled to take effect, giving the Sangamon County court a narrow window to rule before the tax would otherwise begin applying to every qualifying exchange, transfer, and storage transaction in the state.