* Forbes last month…
Illinois is set to implement a groundbreaking 0.2% transactional tax on cryptocurrency transfers, effective January 1, 2027, under its new Digital Asset Tax Act (SB3019). Unlike traditional capital gains taxes, this levy applies every time crypto is moved, irrespective of profit, even between a user’s own accounts or to a self-custodial wallet. Centralized exchanges serving Illinois customers will be responsible for collecting this tax, which could lead to double taxation on routine movements. Experts advise Illinois residents to minimize unnecessary transfers and maintain meticulous records before the law takes effect, as it establishes a unique precedent in crypto regulation.
Most crypto tax laws target what you earn. Illinois is targeting something different: the simple act of moving your own crypto from one place to another. Under Illinois SB3019, which adds a new “Digital Asset Tax Act” to state law, Illinois residents could owe a 0.2% tax every time they transfer crypto, regardless of whether they made a single dollar in profit. This is not a capital gains tax. It is a transactional tax.
The tax is projected to bring in $60 million.
* The Tribune today…
[T]he Chamber of Digital Commerce, an organization that says it represents more than 250 members of the global digital asset industry, filed a lawsuit Tuesday in Sangamon County Circuit Court seeking to block implementation of the new tax. The group argues the tax violates due process rights protected under the state and federal constitutions, along with state and federal provisions protecting interstate commerce and uniform taxation.
The Washington-based organization alleges in its 32-page complaint that the Illinois law imposes a tax on “economically identical property solely because ownership is recorded and transferred using blockchain technology,” the globally dispersed digital ledger.
The chamber argues that cryptocurrency and other digital assets differ from cash, stocks, bonds and other financial instruments only in the way they are exchanged, recorded and stored. Rather than taxing “a new kind of property,” the lawsuit contends, Illinois is taxing “an old kind of property recorded in a new way.” […]
In seeking to overturn the law, the chamber argues that it is riddled with vague definitions and that the Department of Revenue had yet to provide any regulations or guidance on issues such as “when blockchain operations constitute one or multiple taxable occurrences, or prescribing how customer location is to be determined.” For example, the lawsuit alleges, a single customer could be taxed multiple times for transferring the same asset among different digital wallets without the asset ever changing ownership.
Thoughts?
- Flyin' Elvis'-Utah Chapter - Thursday, Jul 23, 26 @ 11:28 am:
Crypto advocates accusing others of being “riddled with vague definitions” is the opossum calling the raccoon a varmint.
- Ares - Thursday, Jul 23, 26 @ 11:29 am:
Transaction taxes in some form are likely part of the future, if not now, then in future decades.
- Steve Polite - Thursday, Jul 23, 26 @ 11:45 am:
The financial industry is all for charging transaction fees when money is moved. It happens every day. Many digital platforms charge a transaction fee. They are willing to take our money, but they don’t want the same treatment. Why not tax it?
- Candy Dogood - Thursday, Jul 23, 26 @ 11:47 am:
===Thoughts? ===
I’m pretty sure we can tax this and I am also pretty confident that’s not a great legal argument against why we shouldn’t be able to, but these days who can crust the courts?
===“when blockchain operations constitute one or multiple taxable occurrences, or prescribing how customer location is to be determined.” ===
What kind of reputable financial organization performs transactions with no idea of the physical location of the customer?
===opossum calling the raccoon a varmint===
I’d stay away from denigrating opossums and raccoons. They poll pretty well, especially among left leaning voters.
- hisgirlfriday - Thursday, Jul 23, 26 @ 11:52 am:
Crypto is a drain on public infrastructure in terms of electricity, water resources, and the criminal justice system in a way that other currency isn’t. It deserves to be taxed heavily given all the negative externalities it has.
- It's always Sunny in Illinois - Thursday, Jul 23, 26 @ 11:55 am:
What kind of reputable financial organization performs transactions with no idea of the physical location of the customer?
We have multiple financial based transaction accounts originally originated in Illinois, and initiate digital transactions from our relocated base in Key West Fl…….the Financial Institutions to my knowledge have no idea we are no longer living in Illinois
- Steve Polite - Thursday, Jul 23, 26 @ 12:03 pm:
“prescribing how customer location is to be determined.”
I don’t own any digital currency, so I am a little ignorant on the subject. But isn’t digital currency subject to capital gains tax when it’s exchanged for other currencies or withdrawn? If that is the case, they should already know the “location” of the customer, because that has to be reported to the IRS and IL Dept. of Revenue. They should be sending customers a 1099.
- Yellow Dog Democrat - Thursday, Jul 23, 26 @ 12:11 pm:
The Security and Exchange Commission will be delighted to know that crypto now argues they want to be treated as a stock.
Also, as their statement points out, cryptocurrency is different in the way that it is “exchanged, recorded and stored”, and it is that exchange which is being taxed.
I think they have blown up their own “uniform” argument by underscoring that crypto is unique.
- Jocko - Thursday, Jul 23, 26 @ 12:37 pm:
Crypto is the modern day equivalent of the “good for one free hug” coupons made for Mother’s Day. I long for the day this currency gets regulated out of existence.
- Ron - Thursday, Jul 23, 26 @ 12:58 pm:
“I don’t own any digital currency, so I am a little ignorant on the subject. But isn’t digital currency subject to capital gains tax when it’s exchanged for other currencies or withdrawn? If that is the case, they should already know the “location” of the customer, because that has to be reported to the IRS and IL Dept. of Revenue. They should be sending customers a 1099.”
yes, cap gains tax on gains is there today, I have had to do this for several years now.
BUT. This is on the transaction itself.
Meaning I have X amount of tokens/coins in lets say ETH (a specific coin) And I want to sell it because it has lost money and I want to get into something else.
Just assume no capital gains here, I bought it for a 1000 bucks, and it is now down to 900. I am going to trade it or even sell it at a loss and move on.
They will tax the transaction. not the gain.
And to those saying “these orgs take a transaction fee” Yes. Because they have to setup and maintain the infrastructure, security, regulatory stuff, etc, etc. Including places like Coinbase that requires all US citizens to KYC (KNow your customer) meaning, pictures of your face, with your ID, etc etc.
they are literally going to tax you even if you lose money while really providing no benefit tot he process. it is a money grab.
- Rich Miller - Thursday, Jul 23, 26 @ 1:01 pm:
===you lose money while really providing no benefit tot he process. it is a money grab. ===
Sounds like crypto. /s
- Just a Random Guy - Thursday, Jul 23, 26 @ 1:03 pm:
=It deserves to be taxed heavily given all the negative externalities it has=
Ridiculous. I guess cash is never used in a negative way? Wait until you learn about what’s been done with gold and silver…
=Thoughts?=
Profits from crypto are already taxed, just like any other means of income. I have very little crypto and haven’t made a transaction in years so this doesn’t affect me, but it’s just another “tax” associated with a state that is well known for heavily taxing anything and everything. Seems excessive and not a good look if you ask me.
- Ron - Thursday, Jul 23, 26 @ 1:18 pm:
Sounds like crypto. /s
Yeah, kinda
- Pundent - Thursday, Jul 23, 26 @ 1:19 pm:
=They should be sending customers a 1099.=
Crypto is the preferred payment method for kidnappers and hackers for a reason. The industry doesn’t want to be taxed or regulated.
- Ron - Thursday, Jul 23, 26 @ 1:24 pm:
“Crypto is the preferred payment method for kidnappers and hackers for a reason. The industry doesn’t want to be taxed or regulated.”
This is untrue, the major crypto players AND big finance are begging for regulation.
And yes it has been used in nefarious ways (like cash, gold, diamonds, hell even oil) but it was because it was so little understood by policing and legal bodies.
Regulation is fine. Taxing the sale or purchase or something (Like lets say I buy 1000 bucks in stock) I get a fee from the brokerage who provides the service of selling it to me, connecting me to they seller, etc.
They want that regulation to make it more mainstream.
If you want to say “its used nefariously so we should tax it” That is ludicrous as it doesnt do anything to help with that, it just taxes the normal (mostly younger people) attempting to use it.
- Duck Duck Goose - Thursday, Jul 23, 26 @ 2:36 pm:
The crypto industry complaining about “vague definitions” is pure comedy gold!
- hisgirlfriday - Thursday, Jul 23, 26 @ 3:41 pm:
@Ron
There are taxes on other transactions whether there is a gain or not.
Illinois has a real estate transfer tax to be paid whether you sell your house for more than you paid for it or not.
And if I transfer money out of my 401(k) before I am 59.5 years old and put that money into a different financial account I control I can be dinged with a 10% federal tax penalty on the $ I moved.
Why can’t Illinois tax crypto $ getting moved around?
- Walker - Thursday, Jul 23, 26 @ 5:48 pm:
Ron. It’s true that some of the most responsible and sophisticated digital assets companies and exchanges agree that their credibility with the public and long term stability will depend on fair predictable regulation, but most companies and exchanges in this arena do not. The key issues are over teeth in the enforcement, and the extent of Federal preemption, when the current Federal approach is considerably weaker than what most states would prefer.
The chamber is being responsive to the majority of their members — just like every similar group who aims for minimal or no taxation and regulation.
In concept this is a small sales tax on the per transaction services which exchanges sell to their customers — the exchanges aren’t really selling gains and losses, despite some of their promotions.