Crypto lobby group Digital Chamber sues Illinois to block digital asset tax

The Digital Chamber, a crypto lobbying group, has filed a lawsuit against the state of Illinois aiming to block the implementation of the Illinois Digital Asset Tax Act. The lawsuit, filed in federal court, argues that the tax law violates both federal and state constitutional provisions, including the U.S. Commerce Clause, the Illinois state constitution’s uniformity and due process clauses, and the Internet Tax Freedom Act. The Digital Chamber contends that the tax unfairly singles out digital asset transactions, conflicting with existing federal tax law and legal precedents on non-discriminatory taxation of electronic commerce.

The Digital Asset Tax Act was passed abruptly in the closing days of the Illinois state legislative session and is set to take effect in January. It imposes a 0.2% tax on companies either based in Illinois or conducting digital asset services within the state, provided their gross receipts exceed $100,000. The lawsuit highlights perceived inequities in the tax structure, noting that it does not differentiate between profitable and unprofitable transactions or between realized and unrealized gains. Instead, it distinguishes transactions based on the technological infrastructure—blockchain versus traditional financial systems—used to record ownership.

According to the Digital Chamber’s filing, federal law differentiates tax treatment based on the nature of the asset itself rather than the recording technology, and the Illinois tax law improperly reverses this principle by focusing on the blockchain infrastructure. The lawsuit seeks a judicial ruling to declare the tax unconstitutional and to prevent Illinois from enforcing it, as well as a request for the state to pay associated legal fees and costs incurred by the Digital Chamber. This legal challenge underscores ongoing tensions between emerging digital asset regulations at the state level and existing federal legal frameworks.