Illinois Faces Lawsuit Over New 0.2% Tax on Digital Asset Activity

Who is being sued and what is at stake

The complaint names Illinois Department of Revenue Director David Harris, Attorney General Kwame Raoul, and Sangamon County State’s Attorney John Milhiser as defendants. At the center of the case is what the plaintiffs describe as a first-of-its-kind state tax aimed specifically at digital asset activity routed through a digital asset broker.

According to the filing, the law does not tax a customer’s profit. Instead, it imposes a 0.2% charge based on the value of a digital asset when certain activity occurs. The trade groups argue that structure could apply even where a customer does not buy or sell, does not realize a gain, and does not transfer ownership in the ordinary sense.

Why the industry groups say the law is unclear

The lawsuit says the tax could reach several kinds of activity, including trades, transfers between accounts, and custody services. In the plaintiffs’ view, that is a major departure from Illinois’ prior tax treatment, where income or capital gains tied to digital assets could be taxable but the transaction itself or the storage service generally was not.

A central complaint is that the statute does not clearly define how many taxable events can arise from a single crypto transaction. The filing asks whether a purchase that involves exchange, transfer, and custody should count as one event or several. It also argues that custody creates special uncertainty because it is ongoing rather than a one-time occurrence.

The plaintiffs further contend that the law does not make clear how a digital asset’s taxable value should be measured. They question whether valuation should occur when a user submits an instruction, when a broker executes it, or when settlement happens, saying that uncertainty could materially change the tax owed.

Location rules and compliance concerns

The complaint also challenges the way the law determines whether a user is in Illinois. It points to account records, mailing addresses, IP addresses, and other data that may create a presumption that a customer is an Illinois resident, while leaving brokers to prove otherwise if records conflict.

The trade groups say that structure exposes firms to significant risk if they get the determination wrong. They argue companies are already spending money on legal review, tax advice, and system changes ahead of the effective date, and warn that some businesses may decide to stop serving customers who might be in Illinois rather than face possible penalties.

Broader legal attack on the statute

Beyond the tax itself, the lawsuit also targets the way the measure became law. Senate Bill 3019 began as a two-page bill and was later expanded into a 1,624-page legislative package, with the Digital Asset Tax Act accounting for fewer than 20 pages. The complaint says the public had roughly an hour’s notice for committee hearings before the bill moved through both chambers within 24 hours.

The plaintiffs argue that this process violated requirements under the Illinois Constitution. They also claim the tax discriminates against electronic commerce in violation of the federal Internet Tax Freedom Act, conflicts with the dormant Commerce Clause, and breaches state and federal due-process protections. The filing additionally invokes the Illinois Uniformity Clause and argues that any one of these alleged defects could be enough to invalidate the law.

What happens next

The immediate issue for the court is whether enforcement can be stopped before Jan. 1, 2027, when the tax is scheduled to begin. The plaintiffs want relief before businesses must register and begin collecting the levy.

That makes the next stage of the case especially important for brokers and other crypto businesses operating in or around Illinois. For now, the confirmed step is the request for judicial intervention in Sangamon County Circuit Court, where the trade groups are seeking to block enforcement before the law takes effect.