US Justice Department, business groups and DeFi firms challenge Illinois crypto tax - Cryptonews.net

The US Department of Justice, business and financial industry groups and a coalition of decentralized finance (DeFi) firms have backed a legal challenge to Illinois' 0.2% digital asset tax, arguing that the measure unfairly targets cryptocurrency transactions and could impose taxes even when investors make no profit.

Over the past week, the Justice Department filed a statement of interest, while the US Chamber of Commerce and the Securities Industry and Financial Markets Association (SIFMA) submitted an amicus filing. A coalition that includes venture capital firms Andreessen Horowitz and Paradigm as well as crypto protocols Uniswap and Aave Labs also filed a brief, according to a Thursday announcement from the Blockchain Association and Crypto Council for Innovation.

Tax Details and Legal Challenges

The law, enacted in June, imposes a 0.2% tax on the value of digital assets exchanged, transferred or stored, regardless of whether a transaction generates a profit. Illinois had projected the digital asset tax would generate $60 million in fiscal year 2027 revenue, according to estimates from the governor's budget office.

Illinois House Speaker Emanuel "Chris" Welch previously promoted the measure as part of a broader affordability agenda aimed at "closing corporate loopholes and making big tech companies and crypto billionaires pay their fair share," the Chicago Tribune reported in July. Lawmakers involved in advancing the legislation and the governor's office did not respond to requests for comment before publication.

The Digital Chamber sued Illinois Attorney General Kwame Raoul and state revenue official David Harris in July, followed by a separate challenge from the Blockchain Association and Crypto Council for Innovation in August. Originally scheduled to take effect on Jan. 1, 2027, the tax was delayed until July 1, 2027, allowing more time for the legal challenges.

Business Groups Warn of Compliance Costs

In a Nov. 6 court filing, SIFMA and the US Chamber of Commerce warned that Illinois' tax would affect banks, broker-dealers, custodians and asset managers across the country, potentially exposing them to significant compliance costs. They also highlighted the financial burden on customers.

The groups said firms would need to develop systems to identify Illinois customers, value digital assets and determine which transactions are taxable, while facing potential criminal penalties for violations. They also argued that the tax discriminates against digital asset services because comparable transactions involving traditional assets are not taxed in the same way, potentially violating federal internet tax protections and constitutional requirements for interstate commerce and uniform taxation.

DOJ and DeFi Concerns

The Justice Department also weighed in on Nov. 6, saying that Illinois' digital asset tax undermines federal efforts to promote cryptocurrency innovation and US leadership in the sector. The filing cited the creation of a Strategic Bitcoin Reserve and the GENIUS Act, which established federal rules for stablecoins. The DOJ argued that less favorable tax treatment for digital assets could conflict with those policies.

Separately, the DeFi coalition warned about who could be held responsible for collecting the tax. In a Nov. 11 filing, the group argued that Illinois' proposed rules could impose obligations on software developers and other blockchain participants who lack customer information, control over user funds or the ability to collect taxes.