US Justice Department, business groups and DeFi firms challenge Illinois crypto tax

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.

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.

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.

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 Cointelegraph’s requests for comment before publication.

Related: France advances stablecoin tax, eyes self-custodial wallets and exit tax proposals

Business groups warn of crypto tax costs and legal violations

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.

“This means that a customer who loses money owes the same tax as a customer who earns a profit,” the filing said. “And a customer who moves the same asset between two accounts faces tax (potentially on both ends) without a sale, a gain, or a change in beneficial ownership.”