Crypto Lobby Group TDC Files Lawsuit to Block New Illinois Digital Asset Tax

The Digital Chamber (TDC) filed a lawsuit Tuesday to stop Illinois from imposing a 0.2% tax on digital asset transactions before the levy takes effect next year.

The 32-page verified complaint, filed in Sangamon County Circuit Court in Springfield, names Illinois Department of Revenue Director David Harris and Attorney General Kwame Raoul as defendants. TDC is asking the court to declare the law “void and unenforceable” and award legal fees.

The challenge targets the Digital Asset Tax Act, which Illinois enacted as part of its FY2027 budget law. The measure is scheduled to begin on January 1, 2027.

TDC argues that the tax violates the Illinois Uniformity Clause, constitutional due process protections, the federal Commerce Clause and the Internet Tax Freedom Act. The complaint says the state cannot tax identical property differently based on whether ownership is recorded on blockchain infrastructure or traditional financial rails.

“Today we are asking the courts to protect consumers and our members and stop this unfair tax in Illinois,” Cody Carbone, CEO of TDC, said. “Taxes should be carefully considered, not only for the revenue they produce but for the fairness of those being taxed. That was not the case here as the provision slipped into legislation the night before the bill’s final consideration.”

The levy reaches transactions, not just profits

The law charges 0.2% of the value of each “covered transaction.” That category includes an exchange, transfer or custodial storage of a digital asset. Illinois officials estimate the measure will produce approximately $60 million annually.

The tax does not operate like a capital-gains levy tied only to profit. A user could owe the charge on the full value of a trade even when the transaction produces a loss.

The law reaches a digital asset broker with a physical presence in Illinois. It also applies to a broker that receives $100,000 or more in annual receipts from Illinois residents.

Noncompliance carries a Class 3 felony under the law’s tax collection and reporting requirements. The measure therefore combines a transaction-level assessment with obligations that could reach businesses serving Illinois residents from elsewhere.

The tax is not yet effective. The lawsuit is pending in Illinois state court.

TDC says wallet transfers could create repeated tax events

The complaint raises concerns about self-custody wallets and decentralized finance activity. TDC says the law’s broad definitions of “broker” and “digital asset business activity” leave uncertainty over how the measure applies to users who control their own wallets.

A transaction can also pass through several platforms or protocols. TDC argues that high-frequency traders and users moving assets through multi-step systems could face stacked charges as the same underlying capital moves between wallets or platforms.

Peter Van Valkenburgh, executive director of Coin Center, described the potential reach in June. “Even just moving your digital assets from one wallet that you control to another. might be a taxable event under this bill, which is kind of nuts,” he said.

TDC’s complaint uses a hypothetical Illinois resident called “Steve Doe” to illustrate the issue. Steve divides his time between Austin and Chicago. Under the scenario, a transaction could be presumed taxable in Illinois because an account had previously been registered with a Chicago address, even if Steve was elsewhere when he traded.

The group also says the law draws an improper line between blockchain-based transactions and transactions handled through traditional infrastructure. Its official statement put the argument more broadly: “No one should be taxed differently because of how ownership of digital assets is recorded or transferred.”

The complaint brings six legal claims against the new law

TDC’s six-count complaint challenges the measure under state and federal law. Its Illinois constitutional claim relies on the Uniformity Clause, while its federal claims invoke due process and the Commerce Clause.

The lawsuit also relies on the Internet Tax Freedom Act. TDC says that federal law bars discriminatory state and local taxes on electronic commerce, and that Illinois’ measure violates that protection by singling out digital asset transactions.

The group’s central comparison concerns the property involved, not the technology used to record or move it. The complaint says Illinois is treating economically similar transactions differently when one uses blockchain infrastructure and the other uses traditional financial rails.

TDC is the first trade association to challenge the measure in court. The organization wants an order blocking enforcement before the January 1, 2027, start date, along with a declaration that the law cannot be enforced.

The case names two senior state officials. Harris oversees the Illinois Department of Revenue, while Raoul serves as the state’s attorney general.

The tax arrived inside a larger budget package

Gov. JB Pritzker signed the FY2027 budget law in June 2026. The tax came through Senate Bill 3019, identified as Public Act 104-0468, a $56 billion revenue omnibus bill signed on June 16, 2026.

Lawmakers initially introduced the measure as the “Digital Asset Privilege Tax.” Final amendments changed its name. The provision was reportedly buried in the larger budget bill, with limited public debate before passage.

The package included other new revenue measures, including a 10% tax on targeted advertising and a tiered social media platform fee. The digital asset provision drew criticism from the crypto industry, which called it the “most punitive digital asset tax in the country.”

A separate legislative repeal effort is also pending. State Rep. John Cabello, R-Machesney Park, introduced House Bill 5798 on June 22, 2026. The bill would repeal the measure in its entirety, effective immediately.

The court case and the repeal bill now offer separate routes for undoing the levy. The lawsuit asks judges to block it under constitutional and federal law, while the legislation would remove it through the General Assembly.

Other states could watch the Illinois case

Industry analysts have warned that an Illinois victory could encourage other cash-strapped states to adopt transaction-level taxes on emerging technologies. TDC’s case therefore reaches beyond the collection rules facing Illinois brokers.

The immediate question is whether the state may impose the charge on January 1, 2027. The broader dispute concerns whether a state can assign different tax treatment to the same property because a blockchain records its ownership or transfer.

House Bill 5798 remains pending as the court challenge proceeds. The tax has been enacted, but enforcement has not started.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.