Legal Battle Erupts as Crypto Organizations Challenge Illinois Digital Asset Tax
Two cryptocurrency advocacy organizations have launched a legal challenge against Illinois' proposed 0.2% digital asset tax, citing violations of constitutional protections and due process requirements, mirroring an earlier lawsuit from the Digital Chamber filed in July.
Two prominent digital asset advocacy organizations, the Blockchain Association (BA) and the Crypto Council for Innovation (CCI), have initiated legal action against state officials in Illinois over a 0.2% cryptocurrency tax that is slated to take effect in January 2027.
According to a lawsuit submitted on Friday to the Circuit Court of the Seventh Judicial Circuit for Sangamon County, legal representatives for the two cryptocurrency advocacy organizations contested Illinois' tax on digital assets, asserting it contravened the United States Constitution, Illinois' state constitution, due process protections at both federal and state levels, and the federal Internet Tax Freedom Act. The legislation was enacted by Illinois Governor JB Pritzker in June as a component of the state's fiscal year 2027 budget, characterizing it as a "privilege tax" that requires cryptocurrency users to pay taxes based on their transaction volume instead of their income.
Regarding the due process complaint, the BA and CCI contended that the taxation measure was "unconstitutionally vague," imposing obligations on both residents and brokers "under the threat of serious civil and criminal penalties" to ascertain which assets should be taxed and the methodology for such taxation. Of particular significance, the cryptocurrency organizations' constitutional arguments centered on purported violations of the Commerce Clause, which governs interstate commerce, asserting that the state's tax "creat[ed] the specter of duplicative taxation."
"States have an important role to play in fostering innovation, but that authority has constitutional limits. Illinois cannot impose a novel tax regime that discriminates against digital commerce, creates uncertainty for consumers and businesses, and threatens to fragment a rapidly growing national market."
Summer Mersinger, CEO of the Blockchain Association and former commissioner at the US Commodity Futures Trading Commission
This legal action by the BA and CCI comes on the heels of a comparable lawsuit initiated by the Digital Chamber in July, in which that particular organization contended that the Illinois taxation measure "discriminates against people who transact in digital assets." These lawsuits demonstrate the substantial influence wielded by digital asset advocacy organizations in challenging legislation enacted by state-level officials in the United States during an election year in which cryptocurrency policy, regulatory frameworks, and legislation could significantly impact voter sentiment.
Illinois also targeting prediction markets
The pushback against the cryptocurrency tax has emerged at the same time as prediction market platform Kalshi's legal challenge against Illinois state officials concerning legislation that became enforceable on July 1. The company has asserted that the legislation "expressly bans sports event contracts" in contravention of federal law by mandating state licensing requirements.
In a related development, Governor Pritzker issued an executive order in April prohibiting state employees from placing bets on these platforms in an initiative designed to "prevent insider trading amid the rapid growth of online prediction markets and event-based gambling contracts."