Illinois Crypto Tax Rules Would Effectively Ban DeFi, a16z, Uniswap Labs Say - bloomingbit
Illinois' draft cryptocurrency tax rules would effectively ban decentralized finance services, according to Andreessen Horowitz, Uniswap Labs, and the DeFi Education Fund.
The firms made their argument in a letter submitted to the Illinois Department of Revenue on October 30. They said state authorities were treating decentralized exchanges, or DEXs, the same as traditional financial brokers under draft rules implementing the Digital Asset Tax Act.
DEXs operate through autonomous software with no intermediary controlling customer assets or executing trades. Unlike centralized exchanges, they are structurally unable to verify customer identities, determine user locations, collect taxes or report individual transactions.
Impossible Compliance
The firms said imposing those obligations would make compliance effectively impossible and could lead to a complete shutdown of DeFi services in Illinois. They also criticized provisions requiring the recording and retention of crypto private keys, warning this raises the risk of customer asset theft.
The law is 'one of the most anti-innovation laws in America' because it imposes taxes simply because a transaction is digital.
Taxing Transfers
Jennings also took issue with provisions that would tax withdrawals from centralized exchanges to private wallets and transfers of assets across blockchains, known as bridging. He said that was equivalent to taxing transfers between a person's own accounts.
The firms argue these measures make the proposal one of the most anti-innovation laws in the US, as autonomous software is not an entity capable of collecting taxes.
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