Illinois Crypto Tax Draws Unlikely Alliance of DOJ, Banks and DeFi

An unusually broad coalition, spanning the U.S. Justice Department, Wall Street's biggest lobby, the national Chamber of Commerce and a who's-who of crypto firms, has thrown its weight behind a legal challenge to Illinois' first-of-its-kind tax on digital asset transactions.

The groups filed briefs this month in Illinois state court supporting a lawsuit from the Crypto Council for Innovation and the Blockchain Association, which are asking a judge to strike down the state's Digital Asset Tax Act and permanently block its enforcement.

The tax imposes a 0.2% levy on the full value of a digital asset every time an Illinois customer trades, transfers, or stores it through a broker, even when there's no sale, gain, or change in ownership.

Critics have called it among the most punitive crypto taxes in the country, in part because Illinois imposes no comparable tax on dollars, gold, stocks or any other asset, and no other state has anything like it.

On Nov. 6, the Justice Department filed a statement of interest arguing the tax undermines federal policy and U.S. leadership in digital assets, calling it vague and discriminatory for singling out crypto for treatment no other asset faces.

The U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association, which represents hundreds of broker-dealers, banks and asset managers, filed an amicus brief warning the tax reaches well beyond crypto-native platforms to the traditional banks, custodians and advisers increasingly offering digital asset products.

A separate brief filed Nov. 11 brought together crypto's heavy hitters, led by the DeFi Education Fund, Andreessen Horowitz, Paradigm and Uniswap, and including Aave Labs, Chainlink Labs, Solana Policy Institute, Phantom, Jito Labs, Multicoin Capital and Stand With Crypto.

Their filing argues the law's definitions are so vague they could stretch to software developers and decentralized protocols that hold no customer funds and have no way to identify users or know where a transaction occurred. The brief noted an estimated 2.64 million Illinoisans hold digital assets, the fifth-highest total of any state.

"This tax is unclear, discriminatory, unconstitutional, and harmful to the future of finance," CCI CEO Ji Hun Kim and Blockchain Association executive Ashok Pinto said in a joint statement.