Illinois crypto tax faces first legal challenge before it even takes effect

The Digital Chamber sued Illinois on Tuesday to block the state’s new 0.2% tax on digital asset transactions, becoming the first trade group to challenge the law in court before it even takes effect.

🧵1/ Today we filed suit in Sangamon County, IL, to stop the Digital Asset Tax Act. No one should be taxed differently because of how ownership of digital assets is recorded or transferred. pic.twitter.com/pv3J3FPybM

— The Digital Chamber (@DigitalChamber) July 21, 2026

The verified complaint, filed in Sangamon County Circuit Court against Illinois Department of Revenue Director David Harris and Attorney General Kwame Raoul, argues the state has not taxed a new kind of property, it has taxed an old kind of property recorded in a new way.

Illinois tax could reach users outside the state

The complaint’s clearest argument comes through a hypothetical: a man named Steve Doe splits time between Austin and Chicago and once registered his crypto accounts using a Chicago mailing address. He then buys coffee with a stablecoin debit card and moves governance tokens to vote in an online protocol, all while never setting foot in Illinois.

The Act makes the old Chicago address sufficient to create a presumption that each of those transfers is an Illinois transaction, taxable individually, failure to comply with which constitutes a Class 3 felony.

TDC’s six-count complaint argues this violates Illinois’ Uniformity Clause, due process protections in both the state and federal constitutions, and the Commerce Clause, and is preempted outright by the federal Internet Tax Freedom Act.

The filing’s core argument is blunt: “it distinguishes only between traditional financial infrastructure and blockchain infrastructure.”

Beyond a court order blocking the tax, TDC is also asking the state to cover its legal fees.

Crypto levy was added through a rewritten farm bill

Senate Bill 3019 did not start as a tax measure at all. It began as a narrow amendment to the Illinois Finance Authority Act covering agricultural financing, then a floor amendment gutted and replaced it with an entire omnibus budget bill carrying the tax provision, according to the complaint.

That maneuver means the Digital Asset Tax Act was never introduced, heard, or debated as its own bill. As Cryptopolitan earlier reported, Kalshi already sued Illinois over a separate provision buried in the same SB 3019 package, that one requiring prediction market platforms to hold a state gambling license. This means there have been two lawsuits against the same bill in one month.

Lawsuit warns blockchain tax could spread beyond crypto

Buried in the complaint is a line that should worry more than just crypto brokers. As per TDC, if Illinois has the right to impose taxes on blockchain technology because it is a new method of recording, then the same logic would justify taxing AI-powered settlement or cloud-powered payments in other states.

Michael Selig, Chairman of the CFTC, has separately referred to the fee as a “sin tax,” noting that it poses a threat to Chicago being a financial hub.

The case is now going before a court in Springfield, which will determine whether or not Illinois can tax identical properties differently depending on which ledger the property is recorded in.