Illinois has proposed new regulations for taxing digital assets, set to take effect in 2027, amid ongoing legal challenges.
The Illinois Department of Revenue (IDOR) has released a draft outlining the regulations for the Digital Asset Tax Act, which will take effect on January 1, 2027. This legislation clarifies tax obligations related to stablecoins, decentralized finance (DeFi), and digital asset transactions among others.
Digital brokers will be primarily responsible for collecting and remitting the tax, which is set at 0.2% of the value of the digital asset involved in a transaction. The value will be assessed in U.S. dollars at the time of the transaction's completion. For example, a $10,000 cryptocurrency transfer would incur a tax of $20, independent of any broker commissions.
The draft regulations establish specific conditions under which the tax applies, including the requirement for clients to be located in Illinois and for transactions to be recorded on the blockchain. Notably, transfers between personal accounts may also be taxable if executed by a broker for a fee.
In addition, the regulations provide clarification regarding stablecoins and DeFi transactions, stating that peer-to-peer transfers without broker involvement will not be taxed. The draft also specifies that NFTs are excluded from the definition of taxable digital assets.
Feedback and Ongoing Legal Challenges
IDOR is accepting feedback on the draft until October 30, before it undergoes the formal legislative process. The agency has acknowledged the complexity of the digital asset landscape as a reason for the early release of these regulations.
The Digital Asset Tax Act is currently facing legal challenges, with two lawsuits filed against it. The Digital Chamber and several industry groups argue that the tax contravenes constitutional protections and the federal Internet Tax Freedom Act. As of now, no court has blocked the implementation of the law.
Starting in 2027, eligible digital brokers will need to register with the state and file tax returns monthly, with the first returns due by the 20th of the following month after the tax is collected.
