Illinois’ new Digital Asset Tax Act presents an obvious administrative problem. Though a new lawsuit filed this week also demonstrates that it may present a constitutional problem as well.
Illinois is set to impose a 0.2% tax on certain digital asset services received by customers in the state, effective January 1, 2027. The tax reaches each occurrence of exchanging, transferring, or storing a digital asset and is measured by the value of the asset involved. Digital asset brokers may be required to register, identify Illinois customers, collect the tax, file monthly returns, and retain records supporting their calculations and sourcing decisions.
While the 0.2% rate seems straightforward, most everything needed to administer the tax in practice is less certain.
The Tax Does Not Follow Federal Realization Principles
For federal income tax purposes, digital assets generally are treated as property. Gain or loss ordinarily depends on the taxpayer’s basis and the amount realized when the asset is sold, exchanged, or otherwise disposed of. A taxpayer paid in cryptocurrency recognizes income measured by its fair market value, while a taxpayer who uses cryptocurrency to purchase property may recognize gain or loss on the disposition. The Illinois tax uses a different measure, as the new tax applies to the receipt of specified digital asset services and is measured by the value of the asset associated with those services.
The difference is clearest with transfers between accounts owned by the same person. The IRS expressly treats a transfer from one wallet, address, or account owned by a taxpayer to another wallet, address, or account owned by that same taxpayer as a nontaxable event. Illinois expressly includes moving a digital asset between two accounts or storage locations of the same customer within its definition of a “transfer.” The Act also defines storing to include holding, maintaining custody of, or controlling a digital asset on behalf of a customer. The tax therefore may apply even when the customer continues to own the same asset, realizes no income, and does nothing that would produce a federal income tax event.
This regime will be integral for how accountants approach digital assets through basis records and disposition reporting. Those records remain necessary for federal income tax purposes, but they do not answer the Illinois question. A separate system may be needed to identify taxable services, customer location, asset value, and the number of taxable occurrences.
So, What Is a Taxable Occurrence?
“Digital asset business activity” includes any single occurrence of exchanging, transferring, or storing a digital asset as part of a business or on behalf of a customer who has agreed to receive those services.
Exchange includes buying, selling, trading, or converting digital assets for fiat currency or other digital assets. Proprietary trading for a business’s own account is excluded. Transfer includes sending an asset to another person, moving it between accounts belonging to the same customer, and relinquishing custody or control. Storage includes custody or control maintained on behalf of the customer.
There are plenty of provisions that will require additional clarification. The pending lawsuit identifies these issues as part of its vagueness challenge. Among other things, it argues that businesses cannot determine whether one on-chain operation produces one taxable occurrence or several. Those allegations have not been adjudicated, but the questions are practical ones that the Department of Revenue will need to address before businesses can build reliable collection systems.
Illinois Borrowed a Federal Broker Definition for a Different Purpose
The Act defines a “digital asset broker” by reference to Internal Revenue Code Section 6045(c)(1)(D) and Treasury regulations issued under that provision.
Section 6045 is a federal information reporting statute. Its digital asset provisions determine which brokers must report certain sales and exchanges and provide information to taxpayers and the IRS. Illinois uses that federal reporting definition to identify businesses that may be responsible for collecting a state transaction tax.
The two regimes do not have the same scope or purpose. Federal broker reporting generally focuses on transactions that constitute sales or exchanges. The Illinois tax also reaches transfers and storage, including activity that may produce no federal disposition and no reportable gain.
The cross-reference also ties the Illinois taxpayer class to federal regulations that may change. A business will need to consider both whether it is a broker under Section 6045 and whether it provides the services Illinois defines as digital asset business activity. One answer does not necessarily resolve the other.
Registration, Nexus, and the $100,000 Threshold
The Act makes it unlawful to engage in business as a digital asset broker in Illinois after January 1, 2027, without a certificate of registration from the Department of Revenue. Applications must be submitted electronically and must identify the person accepting responsibility for filing returns and paying the tax. Certificates generally remain valid for up to one year and renew automatically unless canceled, suspended, or revoked.
A separate provision addresses when a broker is treated as maintaining a place of business in Illinois. The definition includes brokers with a physical or representative presence in the state. It also includes an out-of-state broker whose gross receipts from digital asset business activity involving Illinois customers equal or exceed $100,000 during the preceding 12 months.
The threshold is tested quarterly. Once an out-of-state broker crosses it, the broker must collect and remit the tax and file returns for one year. The broker then looks back over the preceding 12 months to determine whether those obligations continue.
The statute does not clearly state that the registration requirement is limited to brokers that meet the $100,000 collection threshold. Section 3-30 broadly requires registration before engaging in business as a digital asset broker “in this State,” while the threshold appears in the separate definition governing brokers that maintain a place of business in Illinois. Until the Department addresses the relationship between those provisions, remote businesses may face uncertainty over whether registration begins before collection responsibility.
The Tax Base and the Collection Mechanism Use Different Measures
Section 3-20 imposes the tax at 0.2% of the “value of the digital asset” associated with the activity. The Act does not define value, prescribe a pricing source, or specify the time at which the asset must be valued.
Those are important facts to consider. Digital assets may trade around the clock, on several platforms, and at different prices. Some tokens have limited liquidity or no reliable market quotation. A business will need to know whether value means the execution price, a spot price at the time of settlement, a daily average, a recognized index, or another measure.
The collection provisions introduce another question. The statute defines “purchase price” as the consideration paid for the digital asset service, including incidental charges. It then directs the broker to collect the tax by adding it to the purchase price charged to the customer. The tax itself, however, is measured by the value of the digital asset rather than the fee charged for the service.
Suppose a broker charges $25 to transfer a digital asset worth $500,000. A tax measured by the service fee would be five cents. A tax measured by the asset value would be $1,000. The statutory rate points toward the latter calculation, while the collection language describes adding the tax to the price of the service. The Department will need to provide a valuation rule and explain how the tax should be charged when the service fee bears little relationship to the value of the asset.
The issue is more difficult when a broker has no practical ability to withhold part of the asset. The Act nevertheless makes a covered broker liable whether or not it successfully collects the tax. Amounts actually collected are held in trust for the state.
Customer Location Will Drive the Sourcing Analysis
For an in-person sale, the Act looks to the customer’s physical location. Electronic and telephone transactions are subject to a rebuttable presumption.
A customer is presumed to be in Illinois when information associated with the customer’s account or device indicates an Illinois home address, mailing address, internet protocol address, or other data showing an Illinois “place of primary use.” That term is borrowed from the Mobile Telecommunications Sourcing Conformity Act.
The broker bears the burden of proving that the customer was not located in Illinois. It may develop reasonable categorization standards for analyzing customer data, but reliance on those standards does not relieve the broker of that burden. Public Act 104-0468, art. 3, § 3-25.
The resulting compliance system may need to consider more than the address entered during onboarding. A customer may maintain an Illinois mailing address but use the service while traveling. An IP address may reflect a virtual private network, mobile carrier, or corporate network. Different data points may identify different states.
The statute places those factual problems on the broker. Businesses will need written rules for resolving conflicting information and records showing how each transaction was sourced. A blockchain record may establish that an asset moved, but it will not necessarily establish where the customer was located for Illinois tax purposes.
Monthly Returns, Customer Liability, and Recordkeeping
Covered brokers must generally file electronic monthly returns by the twentieth day of the following month. The return must report the broker’s digital asset business sales and the tax due, together with any additional information required by the Department.
The tax generally must be stated separately from the purchase price. If the broker does not collect it, the customer is required to pay the tax by the twentieth day of the month following payment for the service. The broker, remains liable for tax it was required to collect.
The Act also requires books and records that adequately reflect Illinois digital asset business activity, the information used to calculate the tax, and the information used to determine the location of each sale. Those records are subject to inspection by the Department.
The criminal provision deserves particular attention from CPAs. A broker that fails to file a return, violates the Act, fails to maintain required records, files a fraudulent return, or willfully violates an implementing rule may be guilty of a Class 3 felony. The provision also expressly includes an accountant or other agent who knowingly enters false information on a taxpayer’s return.
The Constitutional Case Does Not Resolve the Current Compliance Problem
The Digital Chamber filed a pre-enforcement lawsuit in Sangamon County on July 21, 2026, seeking to have the Act declared invalid and to enjoin its implementation. The complaint raises claims under the Illinois Constitution, the U.S. Constitution, and the Internet Tax Freedom Act. It also challenges the statute’s classifications, sourcing presumption, valuation rules, tax base, and criminal penalties.
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The lawsuit may ultimately determine whether the tax survives and the tax may ultimately be enjoined. But for now, accountants, brokers, and crypto traders alike need to treat January 1, 2027 as the deadline to comply. Unless the Act is repealed or enforcement is enjoined, affected businesses must be prepared to register, collect, report, and retain records.
The constitutional issues will receive much of the attention. But the administrative issues will determine whether businesses can comply. For accountants, the immediate question is how to create a defensible return from a statute that leaves several of its most important calculations unresolved.
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Jake A. Leahy is a tax attorney at Airdo Werwas, LLC in Chicago. He holds an LL.M. in Taxation from the Georgetown University Law Center and a J.D. from the University of Illinois Chicago School of Law. He represents closely-held businesses, local governments, and exempt organizations.
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Tags: Illinois, Income Taxes, Taxes, Technology
