The Blockchain Association and the Crypto Council for Innovation sued Illinois on Aug. 21, asking a state court to strike down the Digital Asset Tax Act before it takes effect Jan. 1.

The complaint, filed in Sangamon County Circuit Court in Springfield, the state capital, names Illinois Department of Revenue Director David Harris, Attorney General Kwame Raoul, and Sangamon County State's Attorney John Milhiser as defendants. The groups seek a ruling declaring the law unlawful and preliminary and permanent injunctions blocking its enforcement. The plaintiffs are two of the crypto industry's main trade associations: the Washington, D.C.-based Blockchain Association, whose members include exchanges, custody providers, and developers, and the Crypto Council for Innovation, a coalition launched in 2021 with backing from firms including Coinbase and Fidelity Digital Assets.

A Tax With No Real Peer

The challenge starts with how the levy is calculated. Instead of taxing a customer's profit, the law takes 0.2% of a digital asset's value when certain activities run through a digital asset broker. The tax can apply even when a customer "buys nothing, sells nothing, gains nothing, and transfers no ownership," the complaint says.

That means swapping bitcoin, moving it between accounts, or paying a company to custody it could trigger the tax. The complaint notes that Illinois previously treated digital assets much like other financial property for tax purposes, with income or capital gains potentially taxable while the transaction or custody service generally stayed untouched. That changes Jan. 1.

Plaintiffs say that gap sits at the heart of the case. Illinois imposes no equivalent transaction tax on buying stock, wiring money between personal accounts, or storing cash, gold, or securities with a bank or broker. In their view, the state is effectively taxing the rails used to hold or move value rather than the actual economic transaction.

One Trade, Uncounted Taxable Events

The ambiguity deepens when a platform performs several services at once. A crypto purchase can involve an exchange, a transfer into the customer's account, and ongoing custody by the platform — and the complaint says the law never clearly answers whether that ordinary sequence creates one, two, or three taxable events.

Custody raises a separate problem because storage runs continuously rather than occurring once. According to the filing, Illinois never explains whether a year of custody counts as a single taxable occurrence, whether every billing period creates another, or whether a changing account balance starts a fresh one. The answer, the complaint says, could swing tax bills "by orders of magnitude."

The statute also leaves plaintiffs wondering how an asset's taxable "value" is actually calculated. The complaint says the law never specifies whether valuation happens when an instruction is submitted, when a broker executes it, or when the transaction finally settles.

Location Rules Leave Brokers Holding the Bag

Determining whether a customer is actually in Illinois creates another trap. Account records, mailing addresses, IP addresses, and other information can trigger a presumption that a customer sits inside the state. The broker must then prove otherwise, and the filing says conflicting data can leave platforms guessing.

Those guesses carry serious consequences. Brokers face civil and criminal penalties for getting compliance wrong, the complaint says, and companies are already spending on lawyers, tax advisers, and system changes ahead of the effective date. Plaintiffs say some firms may ultimately cut off customers who could be in Illinois rather than gamble with felony liability.

A 1,624-Page Bill and a Constitutional Brawl

The groups are also challenging how the tax became law. Senate Bill 3019 began as a two-page agricultural-finance measure before May 31 amendments expanded it into a sprawling 1,624-page package covering numerous subjects. The Digital Asset Tax Act made up fewer than 20 pages of the finished bill. The latest lawsuit follows a suit initiated by the Digital Chamber against Illinois in July.

According to the complaint, lawmakers gave the public roughly an hour's notice for committee hearings before the legislation cleared both chambers within 24 hours. Plaintiffs argue the process violated the Illinois Constitution, whose single-subject rule confines bills to one subject, while producing a law whose basic obligations remain murky despite felony-backed enforcement.

The lawsuit additionally claims the tax violates the federal Internet Tax Freedom Act — a 1998 law, made permanent in 2016, that bars states from imposing taxes that discriminate against electronic commerce — as well as the dormant Commerce Clause, the court-implied limit on state laws that discriminate against or unduly burden interstate commerce, and state and federal due-process protections. The groups also raise Illinois Uniformity Clause and legislative-process claims, arguing that any one of those defects could be enough to kill the law.

The Road to Jan. 1

The immediate showdown is whether Illinois gets to start enforcing the tax Jan. 1. The Blockchain Association and the Crypto Council for Innovation want the court to block enforcement before businesses must register and start collecting — relief that, under the customary test for a preliminary injunction, would require showing a likelihood of success on the merits and irreparable harm without court action. The Digital Chamber's July suit raises a parallel challenge, and rulings in either case can be appealed through Illinois's appellate courts to the state Supreme Court — turning the next four months into a test of whether one state can impose a special tax on financial activity simply because it happens through digital assets.