Illinois explains which crypto moves face 0.2% tax

Illinois has published draft rules explaining when its 0.2% digital asset tax could apply to crypto trades, wallet transfers, stablecoins, DeFi transactions and cross-chain activity starting Jan. 1, 2027.

The Illinois Department of Revenue said on Sept. 28 that the proposal remains in draft form and is open for public comments through Oct. 30. The department has not yet filed the rules with the Illinois Secretary of State or submitted them to the Joint Committee on Administrative Rules.

The underlying Digital Asset Tax Act is already law. Governor JB Pritzker approved the measure on June 16 as part of Public Act 104-468, with the new tax scheduled to begin next year. The statute imposes a 0.2% levy on the value of digital assets involved when an Illinois customer receives covered exchange, transfer or storage services from a digital asset broker.

Illinois crypto tax would cover stablecoins but not NFTs

For ordinary users, one of the clearest points in the draft concerns stablecoins.

The proposed rules classify stablecoins as digital assets even when they are designed to maintain a fixed value against fiat currencies, commodities or other financial instruments. Illinois officials reason that the statutory exclusion for some non-investment digital representations does not extend to an asset marketed to maintain an effectively fixed nominal value.

NFTs receive different treatment. The department’s draft says transactions involving nonfungible tokens fall outside the tax because the underlying state definition excludes digital representations with value or utility beyond simply existing as digital assets, including art, collectibles and intellectual property.

Tokenized securities and commodities appear in the same group of statutory exclusions described in the draft. The proposed rule lists them among digital equivalents of tangible or intangible goods with separate value or utility.

The tax itself is calculated from the value of the digital asset involved, not merely from the broker’s fee. The draft says brokers should determine that U.S. dollar value when the covered activity is completed, using their own spot price or, when unavailable, a benchmark from a regulated market-data provider.

Some DeFi trades could escape the 0.2% charge

DeFi activity would not automatically trigger the Illinois crypto tax.

The draft states that decentralized exchange transactions generally fall outside the levy when users do not provide what the rules call “valuable consideration” to a digital asset broker. Network fees paid to miners or validators do not qualify, while swap fees directed solely to liquidity providers are excluded as well.

A different result applies when a DeFi platform takes a fee for operating or maintaining the service. The department classifies protocol fees collected by the platform as valuable consideration, making the associated exchange, transfer or storage activity potentially taxable.

Under another section, a decentralized exchange that collects protocol fees can qualify as a digital asset broker. A peer-to-peer platform whose swap fees go solely to liquidity pools would not meet that definition under the proposed rules.

Network gas fees remain outside the calculation because the draft defines them as payments made directly for blockchain processing and sent to miners or validators, not fees collected by the exchange or digital asset service provider.

Moving crypto to your own wallet can be taxed

The rules give a direct example involving self-custody.

An Illinois resident moving digital assets from an exchange-controlled wallet into a personally managed wallet would face the tax when the centralized exchange charges a fee to complete the transfer. The department’s example treats the exchange as a broker providing a transfer for valuable consideration.

Ownership does not necessarily need to change. A transfer between two accounts belonging to the same customer may be taxable when a broker charges a fee and the movement creates an entry on the blockchain.

Direct peer-to-peer transfers work differently under the draft. If two people transfer crypto between personally controlled wallets without a broker or other paid intermediary, the transaction would not be subject to the tax.

The rules draw another line around internal account bookkeeping. In one example, a bank changes balances between two customer accounts while the actual coins remain in a common custodial wallet. Because nothing moves on the blockchain, the department says the transaction does not create a taxable event.

Payments for goods can fall within the framework when a third-party service gets involved. The proposal describes an Illinois customer paying a merchant from a wallet managed by an exchange. If the exchange charges the customer a transfer fee, the digital asset transfer becomes taxable.

The retailer receiving crypto does not become a digital asset broker merely by accepting it as payment, according to the proposed rules.

Crypto bridges can count as taxable exchanges

Cross-chain bridges are explicitly included in the draft’s definition of exchange activity.

Illinois describes bridging as exchanging digital assets from one blockchain network to another. When a digital asset broker performs that activity for consideration, the 0.2% tax can apply to the value of the assets involved.

Spot trades, purchases of crypto using fiat and conversions back into traditional currency are listed as other examples of exchange activity. Physically delivered derivatives settlements can fall within the rules, including cash-settled derivatives when settlement uses stablecoins, while derivatives settled in fiat are excluded under the current draft.

The statutory rate remains 0.2%. For example, applying that rate to $10,000 of covered digital assets would produce a $20 tax, regardless of whether the customer’s gain or loss on the asset was positive. The law bases the levy on covered digital asset business activity, not capital gains.

Certain brokers headquartered outside Illinois can come within the state’s framework. The draft says a remote broker qualifies as maintaining a place of business in Illinois when gross receipts from covered services sold to Illinois customers reach at least $100,000. 

As previously reported, Illinois’ new crypto tax requires covered brokers to collect and report the levy once implementation begins. The enacted law requires the tax to appear separately from the service purchase price when collected.

Court challenges could affect what happens next

The Jan. 1 start date remains in state law, but the tax is facing several challenges.

The Blockchain Association and Crypto Council for Innovation asked a Sangamon County court on Sept. 9 for a preliminary injunction that would stop enforcement while their lawsuit proceeds. The groups argue that the tax violates federal and Illinois law and say companies are already spending money preparing compliance systems. Illinois had not been reported as having been barred from enforcing the measure as of the latest available updates.

In related coverage, the two crypto groups sued Illinois in August seeking to block the 0.2% tax. Their claims include alleged violations of the federal Internet Tax Freedom Act and constitutional protections. Those arguments are allegations made by the plaintiffs and have not been established by a final court ruling.

The Digital Chamber filed a separate lawsuit in July. As crypto.news previously reported, the organization argues that Illinois unlawfully treats blockchain-based activity differently from comparable traditional financial transactions. Illinois is defending an enacted statute that remains scheduled to take effect unless repealed, amended or blocked by a court.

A repeal proposal remains pending in the Illinois House. HB 5798 would eliminate the Digital Asset Tax Act, but the General Assembly’s latest record shows the measure has remained at the filing stage while gaining additional sponsors during September.

The immediate administrative deadline comes first. IDOR is accepting comments on its draft through the close of business on Oct. 30, after which the rules still need to move through Illinois’ formal rulemaking process. The department expressly notes that the current version has not yet been filed with the Secretary of State or submitted to JCAR.