Two cryptocurrency advocacy groups have gone to court to try to stop Illinois from enforcing a new 0.2% tax on digital asset transactions, adding to a growing legal fight over the measure before it takes effect in January 2027.

The Crypto Council for Innovation and the Blockchain Association filed suit Friday in the Circuit Court of the Seventh Judicial Circuit for Sangamon County. Their complaint targets a tax adopted in June as part of Illinois’ fiscal year 2027 budget and signed into law by Governor JB Pritzker as a “privilege tax.”

Groups challenge the structure of the tax

The Illinois measure applies to cryptocurrency activity based on transaction volume rather than income. In their lawsuit, the two industry groups argue that this approach is unlawful on several fronts, alleging violations of the US Constitution, the Illinois Constitution, federal and state due process protections, and the federal Internet Tax Freedom Act.

The case asks the court to block the state’s digital asset tax before enforcement begins. The dispute centers not only on the rate itself, set at 0.2%, but also on how the tax is designed and who may be required to determine when it applies.

Due process and interstate commerce claims

A central claim in the complaint is that the law is too unclear to meet due process standards. According to the filing, the tax is “unconstitutionally vague” because it leaves residents and brokers to figure out what is taxable and how the rules apply, while exposing them to potentially serious civil and criminal penalties if they get it wrong.

The organizations also argue that the tax raises constitutional problems related to interstate commerce. Their Commerce Clause challenge says the Illinois regime could result in duplicative taxation when digital asset activity crosses state lines, creating what the complaint describes as the “specter of duplicative taxation.”

Industry groups frame the law as discriminatory

Summer Mersinger, chief executive of the Blockchain Association and a former commissioner at the US Commodity Futures Trading Commission, said states have a role in encouraging innovation but that their authority is limited by the Constitution.

She said Illinois cannot create what she characterized as a novel tax framework that discriminates against digital commerce, increases uncertainty for consumers and businesses, and risks fragmenting a national market that is still developing.

Second lawsuit to target the Illinois measure

The new case follows a similar challenge filed in July by the Digital Chamber, making this at least the second court action against Illinois’ digital asset tax. The repeat legal attacks suggest the measure is likely to face sustained opposition from national crypto policy groups as its implementation date approaches.

For now, the next confirmed step is the state court proceeding in Sangamon County, where the plaintiffs are seeking to prevent the tax from taking effect in January 2027. The outcome could determine whether Illinois is allowed to move forward with one of the more unusual state-level tax approaches aimed at digital asset transactions.

Source: cointelegraph.com