Illinois just became the first state to tax crypto transactions

A First-of-its-Kind Tax on Digital Assets

Illinois has become the first US state to impose a transaction-based tax on digital assets after Governor @GovPritzker signed the Digital Asset Privilege Tax Act into law on June 16. The measure, tucked into a $55.9 billion state budget, makes Illinois the first US state to impose a transaction-based tax on digital asset activity.

Beginning January 1, 2027, the law will impose a 0.2% tax on specific digital asset activities, including cryptocurrency exchanges, transfers, custody, and wallet services. This is not a capital gains tax or a sales tax applied to crypto. It is a privilege tax on the business activity of handling digital assets, targeting brokers specifically.

The act targets primarily service providers including exchanges, custodians, and platforms facilitating the exchange, transfer, or storage of digital assets as part of a business transaction. Based on initial guidance, the privilege tax will act similarly to a sales tax, requiring digital asset brokers to register with the Illinois Department of Revenue and collect the tax by adding it to purchase prices paid by customers. The law also carries enforcement teeth: brokers that fail to register or comply could face a Class 3 felony, punishable by two to five years in prison and fines up to $25,000.

The measure is projected to generate more than $800 million in additional tax revenue to help fund the state's $55.9 billion fiscal 2027 budget.

Industry Pushes Back Hard

The crypto industry is pushing back against the new law, but with the provision having been added last-minute and the legislature now out of session, it may be too late to change it in the short term.

The Digital Chamber and the Illinois Blockchain Association sent a letter opposing the Digital Asset Privilege Tax Act, and a16z Crypto's head of policy, Miles Jennings, called the statute "one of the most anti-crypto laws in the US," noting there is no comparable state financial transaction tax on stocks, bonds, or derivatives.

The Crypto Council for Innovation also expressed concern that the legislation contains few meaningful exemptions, meaning routine transactions, including transfers between personal wallets or accounts, could potentially be taxed. The Council cautioned that the law could drive innovators and developers out of Illinois.

There is a veto session in the fall where the governor could enact a line-item veto, which the Crypto Council for Innovation requested in a letter dated June 16, but it is not clear if Pritzker would do so. Legal challenges now appear likely before the rules take effect in 2027.

Illinois is home to several major crypto firms, including Zero Hash, Jump Crypto, Bitnomial, and Apex Crypto, that fall within the law's reach.

Sources:
CoinDesk: Crypto Industry Aghast at Illinois' New Digital Asset Tax
BDO: Illinois Enacts Potentially Wide-Reaching Digital Asset Tax
Crypto Times: Pritzker Signs Illinois Crypto Tax Into Law