Crypto industry groups are intensifying their legal battle against Illinois' new digital asset tax, arguing that the levy unfairly targets blockchain-based transactions and conflicts with both state and federal law.

The newest challenge came Friday, when the Blockchain Association and the Crypto Council for Innovation filed a lawsuit in Sangamon County Circuit Court in Springfield, the Illinois capital. The Blockchain Association is a Washington-based trade group for crypto companies, and the Crypto Council for Innovation is an industry-backed policy organization. The two groups are seeking preliminary and permanent injunctions to block Illinois from enforcing the Digital Asset Tax Act.

The filing follows a separate lawsuit brought in July by The Digital Chamber, a trade association formerly known as the Chamber of Digital Commerce, which likewise seeks to stop the tax before its scheduled January 2027 effective date.

The disputed tax

Illinois lawmakers approved a 0.2% tax on digital asset business activity as part of the state's fiscal 2027 budget. The measure applies to qualifying businesses operating in Illinois and is based on digital asset transaction activity rather than investment profits, unlike federal capital gains rules, which tax realized gains.

Industry groups contend that this structure creates a major problem. According to the legal challenges, the tax can apply regardless of whether a transaction produces a gain or a loss. They further argue that Illinois is, in effect, taxing commerce differently simply because blockchain technology is used to record or transfer ownership. Most state-level digital asset policy to date has focused on licensing, custody rules and, more recently, strategic reserve initiatives rather than dedicated taxes on digital asset transactions, leaving Illinois' measure an unusual test case as the litigation proceeds.

The constitutional argument

The advocacy groups assert that the law violates the U.S. Constitution, the Illinois Constitution and the federal Internet Tax Freedom Act, and they have also raised due process and dormant Commerce Clause concerns. The Internet Tax Freedom Act, first enacted in 1998 and made permanent in 2016, generally bars states from imposing multiple or discriminatory taxes on electronic commerce, as well as taxes on internet access. The dormant Commerce Clause is a judicially inferred doctrine that restricts state laws discriminating against or unduly burdening interstate commerce.

The Digital Chamber has warned that the policy could establish a precedent for states to impose technology-specific taxes on other forms of digital commerce.

The litigation remains at an early stage, and Illinois has not yet prevailed in defending the tax. Among the first issues the courts will weigh are the requests for preliminary injunctions, which ask judges to halt enforcement of the tax while the underlying case proceeds. The cases could determine whether the state proceeds with implementation or must revise its approach before the January deadline.

For crypto businesses and users, the dispute carries broader implications. A court ruling against Illinois could limit similar transaction-based taxes elsewhere, while a ruling in the state's favor could encourage other jurisdictions to consider comparable measures.