Illinois Taxes Blockchain Transactions

Digital Chamber, one of the leading organizations representing the digital asset industry, has filed a lawsuit against the State of Illinois. The group is challenging the Digital Asset Tax Act, which introduces the first transaction tax in the United States that applies exclusively to blockchain-based assets.

The organization represents digital asset exchanges, custodians, financial institutions, payment providers, stablecoin issuers, tokenization platforms and blockchain infrastructure providers, among others.

The law imposes a 0.2% tax on the exchange, transfer and custody of digital assets. Digital Chamber argues that comparable transactions involving cash, stocks or bonds are not subject to the same tax.

The way the tax is calculated has also sparked controversy. Each exchange, transfer and custody service is treated as a separate taxable event. As a result, the tax may be charged multiple times during routine transactions. It even applies when a custodian simply holds digital assets on behalf of a client.

According to Digital Chamber, the law could also apply to transactions without a sufficient connection to Illinois due to the broad presumptions included in the legislation.

The organization is asking the court to declare the law unlawful and prevent it from being enforced. It alleges that Illinois authorities have violated both the state and federal constitutions, equal protection and commerce principles, as well as federal regulations governing internet taxation.

The court’s ruling could determine whether individual states are allowed to impose separate taxes on blockchain transactions while comparable transactions involving traditional assets remain exempt from such charges.