Illinois crypto tax proposal hit by lawsuit

The Digital Chamber, a popular cryptocurrency lobbying organization, sued the U.S. state of Illinois on July 21 to halt a proposed tax plan.

Illinois' Digital Asset Tax Act, passed and approved on a short notice last month on June 16, enacts a 0.2% tax on businesses transacting or storing crypto assets for their customers in the U.S. state.

Related: Congress weighs major tax changes affecting 70 million Americans

Illinois' official state slogan is Land of Lincoln," adopted to honor former U.S. President Abraham Lincoln, who lived and built his political career there.

The law, which enacts a 0.2% tax on "receiving any digital asset business activity," takes effect on Jan. 1, 2027. It applies to firms based in Illinois or providing services to the state's residents with total gross receipts of at least $100,000.

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The Digital Chamber alleged in the lawsuit that the tax proposal violated both the U.S. and state constitutions and was preempted by a federal tax law. As per the Internet Tax Freedom Act, e-commerce would not be subjected to discriminatory state and local taxation, the group added.

"The Act does not distinguish between gains and losses, between profitable and unprofitable transactions, between realized and unrealized appreciation, or between transfers that change ownership and transfers that do not,” the lawsuit claimed. “It distinguishes only between traditional financial infrastructure and blockchain infrastructure.”

In its lawsuit, the crypto lobbying group asks a federal judge to halt the government of Illinois from enacting the 0.2% crypto tax and award any fees and costs to TDC.

Related: Nearly 40 million investors could face a crypto ban