Illinois Capitol, seen from steps of Illinois Supreme Court, Springfield
SPRINGFIELD — Saying Illinois has enacted an illegal tax that singles out cryptocurrency trades, a group representing the cryptocurrency industry has asked a court to strike down Illinois' new tax on the transfer of so-called digital assets.
On July 22, the group known as The Digital Chamber filed a lawsuit in Sangamon County Circuit Court in Springfield.
The lawsuit has been threatened since the moment Illinois Democratic lawmakers rammed through the tax as part of the state's $56 billion budget bill, which was passed hastily and with minimal public review in the closing hours of the 2026 spring legislative session.
“Today we are asking the courts to protect consumers and our members and stop this unfair tax in Illinois," said Cody Carbone, CEO of The Digital Chamber, in a statement announcing the lawsuit. "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 lawsuit particularly takes aim at the differences in how Illinois would tax transfers of cryptocurrency vs. other financial assets, such as stocks and bonds.
Under the new Illinois tax, the state would slap a tax of 0.2% on every cryptocurrency "trade" or transfer. That tax would even apply to transfers a cryptocurrency owner makes between different accounts within their own digital wallets, without adding any new value to their holdings.
According to official estimates, Illinois state officials expect the tax to bring in $60 million annually, beginning in 2027 when the tax is scheduled to take effect. However, the actual amount that may be collected is far from certain, as such a tax has never been enacted anywhere in the U.S. before.
In The Digital Chamber's lawsuit, the group says there is a good reason for that, as they assert Illinois' tax has transgressed a constitutional line.
The group says the law unconstitutionally not only singles out the cryptocurrency transactions for taxation, but does it using a metric never before employed:
Punishing cryptocurrency owners by taxing their assets based on the blockchain technology used to transfer the assets.
"Illinois has not taxed a new kind of property; it has taxed an old kind of property recorded in a new way," the lawsuit said.
"... Technological innovation has repeatedly transformed the mechanisms through which commerce is conducted. Telegraphs gave way to telephones. Paper stock certificates became electronic book-entry systems. Physical trading floors became electronic exchanges.
"Checks evolved into electronic funds transfers and real-time payment networks. In no instance did the law impose materially different tax burdens on identical property merely because the infrastructure through which commerce was conducted had evolved.
"Blockchain technology is the next stage of that evolution: it changes the method by which ownership is recorded, verified, settled, and transferred; it does not alter the underlying economic rights in the property exchanged."
The Digital Chamber said cryptocurrency holders are not seeking "special treatment for digital assets or an exemption from generally applicable taxation."
Rather, they said, their lawsuit "seeks the opposite: equal treatment of economically identical property regardless of the technology through which ownership is recorded, transferred, or settled."
Further, the lawsuit says the state tax would unconstitutionally subject cryptocurrency assets to unconstitutional double taxation, or worse.
The tax would apply not only when digital financial assets are acquired, but also whenever a customer even transfers the assets to a different broker or to a different account in their own holdings.
The law, the suit said, imposes taxes on "the same asset’s value ... repeatedly as it moves through routine operations that no existing federal or state tax system, including Illinois for any other asset, treats as taxable events."
No other kind of asset is taxed in this way, the complaint said.
The lawsuit asserts the new Illinois tax violates protections within the Illinois state constitution; the U.S. Constitution's so-called Commerce Clause; and violates federal law, among other alleged violations.
The Digital Chamber is represented in the action by attorneys Jonathan E. Schmalfeld, of Brightpoint Law, of Arlington, Virginia; and Teresa Goody Guillen, Olta Andoni and Angela Papalaskaris, of Bellementis PLLC, of Washington, D.C.
Given the constitutional uncertainty surrounding the cryptocurrency tax law, Illinois lawmakers have already introduced legislation that would repeal the tax entirely.
However, that legislation, docketed as House Bill 5798, was introduced by a Republican, Illinois State Rep. John M. Cabello and has not yet attracted any bipartisan support from any Democrats, who hold a supermajority in the Illinois General Assembly.
