Drew Hemmings, Doug Wick, David Zaslowsky & Matthew Musano (Baker McKenzie): Illinois Enacts First-of-Its-Kind Cryptocurrency Transaction Tax (Bloomberg Law)
Illinois is the first state in the nation to impose a controversial transaction-based tax on digital asset activity, inserting the Digital Asset Tax Act, or the “cryptocurrency tax,” into the sweeping fiscal year 2027 budget bill with little public notice or industry input. Effective in 2027, the cryptocurrency tax, enacted as part of Senate Bill 3019, imposes a 0.2% levy on the value of digital assets involved in each covered transaction — a novel and controversial approach that departs sharply from how states have historically treated financial activity…. The long term viability of this new tax is uncertain. On June 22, 2026, the Illinois General Assembly introduced House Bill 5798 which, if enacted, would repeal the Digital Asset Tax Act in its entirety, effective immediately — highlighting the level of concern and uncertainty surrounding the new regime.
Potential Legal Challenges
The introduction of HB5798, which would repeal the cryptocurrency tax entirely, highlights the degree of legal and policy uncertainty surrounding the regime. If the proposed legislative repeal is unsuccessful, the scope and novelty of the tax make outcomes uncertain. Several areas of legal challenge may emerge, including (but not limited to):
- Commerce Clause considerations. The application of the cryptocurrency tax to high-frequency trading or multi-step digital asset transactions may result in cumulative taxation, which could be argued to impose an undue burden on interstate commerce under the Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) framework. In addition, the rule requiring taxpayers that meet the economic nexus threshold in one period to continue collecting and remitting the cryptocurrency tax in a subsequent period raises questions whether the cryptocurrency tax satisfies the substantial nexus requirement for subsequent periods where no economic contacts exist.
- Due Process Clause considerations. The sourcing provisions rely on rebuttable presumptions (for example, based on IP address or account information), yet the statute doesn’t articulate a clear evidentiary standard for overcoming those presumptions. To the extent digital asset brokers are unable to reliably determine customer location, these rules could raise constitutional concerns as to whether the cryptocurrency tax is rationally related to in-state activity. Similarly, the broad “maintaining a place of business” standard (including temporary or attributional presence) may invite scrutiny under traditional minimum contacts principles.
- The Internet Tax Freedom Act and discrimination concerns. As noted above, the imposition of a transaction-based tax on digital asset activity, in the absence of a comparable tax on traditional financial instruments or securities transactions, may give rise to arguments that the cryptocurrency tax treats economically similar activities differently. Such arguments would likely focus on whether the cryptocurrency tax results in discriminatory treatment of interstate commerce or lacks a rational basis for such differential treatment. To the extent the cryptocurrency tax targets transactions based on their execution through digital asset infrastructure rather than the underlying economic activity, taxpayers may explore arguments under the Internet Tax Freedom Act’s prohibition on discriminatory taxes on electronic commerce.
While it remains to be seen whether these issues will be litigated (if not repealed by HB5798), the structure of the cryptocurrency tax suggests that it will likely face formal challenge as taxpayers and industry participants evaluate its application in practice.
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