Illinois tax authorities have published draft rules clarifying the reach of the state’s 0.2 percent digital asset transaction tax, outlining which cryptocurrency activities would face the levy when it takes effect on January 1, 2027. The Illinois Department of Revenue released the proposal on September 28 and is accepting public comments through October 30.

The underlying Digital Asset Tax Act was signed into law in June as part of Public Act 104-468. It imposes a 0.2 percent charge on the value of digital assets involved when an Illinois customer receives covered exchange, transfer or storage services from a digital asset broker. Brokers are responsible for collecting the tax, which is calculated on the dollar value of the assets at the time of the covered activity rather than on any capital gain or loss.

Stablecoins Taxed, NFTs Explicitly Excluded

Under the draft, stablecoins are classified as digital assets subject to the tax even when designed to maintain a fixed value against fiat currencies or other instruments. Officials determined that the statutory exclusion for certain non-investment digital representations does not cover assets marketed to hold a stable nominal value.

Nonfungible tokens fall outside the tax. The rules state that NFT transactions are excluded because the state definition omits digital representations that carry value or utility beyond existing as digital assets, such as art, collectibles or intellectual property. Tokenized securities and commodities are listed among the same group of statutory exclusions.

Memecoins are treated as taxable digital assets under the proposal.

DeFi Treatment Hinges on Fees

Decentralized finance activity receives differentiated treatment. Transactions on DeFi platforms generally escape the tax when users do not provide “valuable consideration” to a digital asset broker. Network fees paid to miners or validators and swap fees directed solely to liquidity providers are not considered taxable events.

A different outcome applies when a platform collects protocol fees for operating or maintaining the service. Those fees qualify as valuable consideration, potentially making the associated exchange, transfer or storage activity taxable. A decentralized exchange that takes such protocol fees can meet the definition of a digital asset broker, while a peer-to-peer platform whose swap fees go only to liquidity pools would not.

Transfers, Bridges and Self-Custody Rules

Moving digital assets from a centralized exchange to a self-custody wallet can trigger the tax when the exchange charges a fee for the transfer. The draft treats the exchange as a broker providing a transfer service for valuable consideration. Ownership need not change; transfers between accounts belonging to the same customer may also be taxable if a broker charges a fee and the movement creates a blockchain entry.

Direct peer-to-peer transfers between personally controlled wallets without a paid intermediary remain outside the tax. Internal bookkeeping changes that do not move assets on the blockchain, such as balance adjustments within a common custodial wallet, are likewise excluded.

Cross-chain bridging is defined as exchange activity. When a digital asset broker performs bridging for consideration, the 0.2 percent tax can apply to the value of the assets involved. Spot trades, fiat-to-crypto purchases, crypto-to-fiat conversions and certain physically delivered or stablecoin-settled derivatives also fall within the covered exchange categories. Derivatives settled in fiat are excluded under the current draft.

Broker Thresholds and Collection Duties

Remote brokers headquartered outside Illinois can fall under the state’s rules if their gross receipts from covered services sold to Illinois customers reach at least $100,000. Covered brokers must collect and report the levy, and the tax must appear separately from the service purchase price.

The department has not yet filed the rules with the Illinois Secretary of State or submitted them to the Joint Committee on Administrative Rules. After the comment period closes on October 30, the proposal will still need to complete the formal rulemaking process.

Ongoing Legal Challenges and Legislative Response

The tax faces multiple court challenges. The Blockchain Association and Crypto Council for Innovation filed suit seeking a preliminary injunction to halt enforcement, arguing the measure violates federal and state law. The Digital Chamber brought a separate lawsuit claiming the tax unlawfully treats blockchain-based activity differently from comparable traditional financial transactions. As of the latest updates, no court has barred enforcement of the enacted statute.

A repeal bill, HB 5798, has been introduced in the Illinois House and has attracted additional sponsors, but it remains at the filing stage and has not repealed the law.

Illinois is currently the only U.S. state to have enacted a transaction-based tax specifically targeting digital asset activity. The federal Internal Revenue Service continues to treat digital assets as property, generating capital gains or losses on sales and exchanges and requiring certain reporting by brokers.