The Justice Department has stepped into a state-court fight over the Illinois digital asset tax, a 0.2% levy on crypto transactions, telling a Springfield judge the law undermines federal digital asset policy and should not stand. The federal filing arrived alongside briefs from the U.S. Chamber of Commerce, the securities industry’s main trade group and a coalition of DeFi developers and investors, all backing a challenge brought by the Blockchain Association and the Crypto Council for Innovation.
What the Justice Department told the court
The statement of interest, filed on Nov. 6 in the Circuit Court of Sangamon County, argues that the Illinois Digital Asset Tax Act “threatens American leadership in digital assets by targeting such assets for unfavorable treatment and imposing burdensome and arbitrary liability in the process.” The department said the law carries “an excessively burdensome (and in many respects incoherent) threat of liability” and asked the court to “reject Illinois’ effort to undermine an industry that is critical to U.S. innovation and economic leadership.”
The filing leans on the White House’s own crypto agenda. It cites the executive order that set up the Strategic Bitcoin Reserve, the GENIUS Act for stablecoins and the 160-page framework from the President’s Digital Asset Markets Working Group as evidence of a federal policy that a state tax singling out crypto would cut against. Federal law lets the department weigh in on state-court cases without the court’s permission.
It is unusual for federal lawyers to weigh in on a state tax dispute in a county courthouse. It also fits a pattern this month. On Thursday, the department and the CFTC sued Arkansas to stop its case against Kalshi, again arguing that a state was interfering with a federal priority.
How the Illinois tax works
The law taxes 0.2% of the full value of a digital asset each time an Illinois customer exchanges, transfers or stores it through a broker, even when there is no sale, no gain and no change in ownership, according to the Blockchain Association. The group said Illinois puts no comparable tax on dollars, gold or stocks, and that no other state has anything like it.
A trader who loses money pays the same as one who profits. Moving a coin between two accounts at different brokers can be taxed without any sale at all. Illinois budget officials had projected the levy would raise $60 million in fiscal 2027, Cointelegraph reported.
The Digital Chamber sued over the tax in July, and the Blockchain Association and Crypto Council for Innovation filed their own case in August. The two cases have since been consolidated. In October, the state agreed to hold off on the tax until July 1, 2027, the Blockchain Association said.
Wall Street and DeFi pile in
The Chamber and the Securities Industry and Financial Markets Association filed an amicus brief the same day as the Justice Department. Their point was that the tax does not stop at crypto exchanges. Banks, broker-dealers, custodians, advisers and asset managers that offer digital asset products would have to build systems to identify Illinois customers, value assets and work out which activity triggers the tax, all under the threat of felony penalties, according to the Blockchain Association’s summary.
On Nov. 11, 18 companies and groups asked for leave to file a brief of their own, among them the DeFi Education Fund, Andreessen Horowitz, Paradigm, Uniswap Labs, Aave Labs, Chainlink Labs, Phantom, Jito Labs and the Solana Policy Institute. Their main target is the Illinois Department of Revenue’s draft rules, posted on Sept. 28, which they say read the law so broadly that it would cover software developers and DeFi front ends.
The brief’s technical argument is simple. A public blockchain shows wallet addresses, amounts and transaction data, but no home address, IP address or “place of primary use,” the details the Act relies on to presume a customer is in Illinois. Developers of non-custodial software “keep no accounts or customer records,” the coalition wrote, so they could be handed a collection duty they cannot perform. The brief also says an estimated 2.64 million Illinois residents hold crypto, the fifth-highest total of any state, citing National Cryptocurrency Association data.
Both industry filings argue the tax breaks the Illinois Constitution’s uniformity clause and the federal Internet Tax Freedom Act, which bars discriminatory taxes on electronic commerce.
What happens next
The plaintiffs filed a motion for summary judgment on Nov. 4, according to the coalition’s brief, so the next step is a ruling on whether the law can be struck down without a trial. The defendants are Illinois Department of Revenue Director David Harris, Attorney General Kwame Raoul and Sangamon County State’s Attorney John Milhiser.
The revenue department’s rules are also still in draft. If the court lets the law stand, the final version of those rules will decide whether the tax stays with brokers or reaches into DeFi, and brokers would have until July 1, 2027 to be ready.
FAQ
What is the Illinois digital asset tax?
It is a 0.2% tax on the value of crypto each time an Illinois customer exchanges, transfers or stores it through a broker, whether or not the customer makes a profit. The state has agreed not to apply it before July 1, 2027.
Is the Justice Department a party to the case?
No. It filed a statement of interest supporting the plaintiffs, the Blockchain Association and the Crypto Council for Innovation, in the Circuit Court of Sangamon County. The case is consolidated with an earlier suit from the Digital Chamber.
Would DeFi users be taxed?
That depends on the final rules. The DeFi coalition says the Department of Revenue’s Sept. 28 draft would stretch the law to developers and protocols that hold no customer funds, and it is asking the court to rule the Act too vague to enforce.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
