As US states continue to face federal funding cuts and higher costs, they must now turn to new sources of revenue to make up the difference. While New York and Rhode Island have implemented Pied-a-Tierre taxes, and North Carolina and Kentucky have imposed a tax on prediction markets, the state of Illinois has decided to target cryptocurrencies. Starting in 2027, Illinois will be the first state to impose a tax on the value of digital assets involved in a covered transaction. While Illinois expects to collect $60 million in additional tax revenue from this new crypto tax, it may have some unintended consequences.
What exactly is the Illinois crypto tax?
As part of Illinois’ new state budget, the state included the Digital Assets Tax Act. This law imposes 0.2% on digital business activity, including the exchange, transfer and storage of digital assets through a broker. In short, the law will tax digital asset activities.
The tax will be levied at the transaction level regardless of the profits (or losses) arising from the transaction. This means that if an Illinois resident sells Bitcoin for $75,000, they will owe Illinois $150. The catch is that it doesn’t matter how much the resident paid for the Bitcoin. If it was purchased for $100,000, then the resident still owes the $150 even though the resident has a loss on the transaction. The resident will still be able to claim individual tax benefits (or owe individual taxes) on the gain (loss) in value of the digital assets.
To facilitate this tax, brokers will now have to register with the Illinois Department of Revenue and remit the 0.2% tax as a separate line item to their clients. These brokers will collect the taxes and remit them to the government. Brokers located in Illinois will collect and owe the tax, as will any out-of-state broker that collects more than $100,000 each year from Illinois-based clients.
The Case For Illinois’ Crypto Tax
Illinois applies a low tax rate to a narrow class of transactions. This tax is not expected to significantly change the economic well-being of the state. That idea is underscored by Illinois’ $56 billion budget, and the tax is just $60 million in additional tax revenue.
Illinois is uniquely positioned to implement this type of tax as the state already requires broker registration under Digital Assets and Consumer Protection Actimplemented in 2025. Thus, the practicality of implementing this type of new tax legislation faces far fewer obstacles than if the infrastructure was not already in place.
The state is also acting as a first mover in the fight to tax digital assets. As the federal government continues to slowly move toward a federal framework for taxing digital assets, Illinois is at the front of the queue to claim state-level tax advantages that may not be granted if formal federal legislation precedes it.
The Case Against the Illinois Crypto Tax
Illinois can now be accused of being one of the least friendly states for digital assets in the U.S. This tax on cryptocurrency transfers will be the first of its kind in a world where no other state taxes the transfer of these assets. While residents can reasonably move away from investing in these digital assets into other assets that will not face such a tax (eg, stocks, bonds, or mutual funds), those with significant digital asset activity may need to shift the activity to non-Illinois brokers or off-chain settlement.
A central reason why this tax can be particularly damaging arises from the idea that a digital asset can face many levels of transactions. The Illinois digital asset tax is at the transaction level based on the gross value of what is transferred. A digital asset like cryptocurrency can exchange hands many times and the cryptocurrency will be subject to tax on each transfer. Profits arising from many low-margin transfers will be limited, making the purchase and sale of digital assets in Illinois untenable.
Finally, some have questioned how easy this tax will be to implement. Illinois will claim nexus in many transactions and puts the burden on brokers to prove that a customer is not subject to the tax. As emphasized by Bloomberg Tax, these kinds of nexus requirements are not trivial and have been shown to be problematic in other states when they implement similar style requirements.
What’s Next for Illinois Crypto Tax Law?
If nothing changes, this digital asset tax law will go into effect in early 2027. Governor Pritzker has the option to veto state budget line items. Assuming this does not occur, the Illinois Department of Revenue will need to issue regulations to provide guidance on the implementation of the tax and to fill any gaps that may exist within the law.
However, Illinois representatives are already taking action to fight this new law. House Bill 5798 was introduced on June 22, 2026, to repeal this provision. As discussed by TaxProfBlog, The new law creates a degree of legal and political uncertainty that can make the tax particularly burdensome for the state. This idea comes in the context of growing pressure from several key players in the digital asset industry, such as Jump Crypto and Bitnomial, expressing concerns about the new tax, they say Writing. If these companies materially change their services or move some or all of their operations out of Illinois in response to the new tax, then the expected benefits may soon disappear.
Illinois lawmakers have over a year of runway before this crypto tax is fully fleshed out. The repeal bill, the session veto, and subsequent regulations will shape what is actually collected starting in 2027. However, the real question seems to be whether the $60 million in additional tax revenue expected to be collected from the crypto tax is worth the fight ahead. If it survives and leads to prosperity, other states may use Illinois as a model for enacting similar laws. However, if it fails, it could be a cautionary tale of overshoot for a small revenue stream. Either way, Illinois has already answered the questions every other state has been quietly avoiding: whether digital assets belong in the tax code, and how far a state is willing to go to put them there.
