Illinois to begin taxing digital asset brokers on January 1, 2027

Illinois has become the first state to enact a transaction tax on digital asset activity. Illinois Public Act 104-0468 creates the Digital Asset Tax Act (DATA), which imposes a 0.2 percent tax on the value of digital assets exchanged, transferred, or stored on behalf of Illinois customers, effective January 1, 2027.[1] The law requires digital asset brokers, including exchanges, to register with the Illinois Department of Revenue before engaging in any Illinois business activity, irrespective of whether they have crossed the $100,000 economic nexus threshold. Certain violations, including failure to register, are subject to Class 3 felony penalties.[2] The registration requirement may raise constitutional questions because it appears to require registration before a broker has established contacts with the state sufficient to satisfy applicable nexus standards. Additionally, although DATA contains an express interstate commerce savings clause, it leaves key terms, including “value,” undefined, presenting compliance uncertainty pending Department rulemaking.[3]

Key provisions

DATA includes the following:

• Tax base and rate. Starting January 1, 2027, DATA imposes a tax “upon the privilege of receiving any digital asset business activity by a customer” in the State at the rate of 0.2 percent on the “value of the digital asset to which the digital asset business activity relates.”[4] Taxable “digital asset business activity” covers any single occurrence of exchanging, transferring, or storing a “digital asset” as part of a business or on behalf of a customer who has entered into an agreement with a business for the provision of those services.[5] This means that there is a tax on each transfer – even if the initial transfer is temporary. DATA does not define “value,” leaving valuation methodology to future Department rulemaking.[6]


• Covered assets. Borrowing from the Digital Assets and Consumer Protection Act, DATA defines “digital asset” to mean “a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not fiat currency.”[7] DATA separately defines “digital asset broker” by cross-reference to the federal broker-reporting definition in Section 6045(c)(1)(D) of the Internal Revenue Code. As a result, uncertainty regarding who qualifies as a “broker” for federal digital asset reporting purposes may also affect DATA compliance analysis.[8]


• Proprietary trading exclusion. Notably, the definition of “exchange” under DATA does not include buying, selling, or trading digital assets for a person’s own account in a principal capacity. This exclusion for proprietary trading means that entities trading digital assets for their own portfolios – rather than on behalf of customers – may not be subject to the tax on those transactions.


• Sourcing. For electronic transactions, there is a rebuttable presumption that a sale is sourced to Illinois if the customer has an Illinois-based address, internet protocol (IP) address, or other data showing that the place of primary use is in Illinois. The broker bears the burden of rebutting the presumption.[9]


• Nexus threshold. A broker is maintaining a “place of business in this State” if it has any physical presence in Illinois, or if it is headquartered outside Illinois and earns $100,000 or more in gross receipts from Illinois digital asset business activity in a trailing 12-month period, tested quarterly.[10] Once a remote broker meets that threshold, it is subject to collection, remittance, and filing obligations for a full subsequent year even if receipts later fall below $100,000.[11] Only at the end of that year does the broker retest against the trailing 12-month threshold, reverting to quarterly testing if the threshold is not met again.[12]


• Collection. Brokers must collect the tax as a separate line item and remit it to the Department.[13] Monthly returns are due electronically by the 20th of each month for the preceding calendar month.[14] Where digital asset business activity is sold as a bundle of separate services, DATA treats each service as an individual sale, which may require brokers with blended fee structures to unbundle pricing for tax purposes.[15]


• Exemptions. The tax does not apply to business in interstate commerce that “may not, under the Constitution and Statutes of the United States, be made the subject of taxation by this State,”[16] nor to services provided to the US government.[17]


• Effective date. DATA’s operative provisions – including the tax imposition and registration requirement – begin January 1, 2027. Brokers must obtain a certificate of registration from the Department before that date.


• Home rule preemption. DATA preempts local municipalities from imposing their own digital asset taxes. The statute expressly provides that no home rule municipality has the authority to impose any tax on digital asset business activity, constituting a denial and limitation of home rule powers under the Illinois Constitution.

Practical implications

Key considerations for digital asset brokers include the following:

• Registration requirement. The registration mandate in Section 3-30(a) applies to “any person” engaging in business as a digital asset broker without conditioning registration on first meeting the $100,000 threshold that triggers collection and remittance duties. In addition to raising potential Commerce Clause issues, this creates a structural gap: A remote broker must register before conducting any Illinois activity, but does not have to collect the tax until it crosses the economic nexus threshold.[18] The registration requirement may be subject to legal challenge if Illinois attempts to enforce non-registration penalties against an entity that lacks sufficient contacts with the state to satisfy applicable constitutional standards.


• Criminal exposure. Failure to file returns, failure to register, filing fraudulent returns, or failure to maintain records are each classified as a Class 3 felony, with a five-year statute of limitations.[19] This criminal exposure is similar to the penalties imposed by Illinois under its Digital Ad Tax. Although certain violations are classified as felonies under the statute, it remains unclear how Illinois intends to enforce these provisions.


• Borrowed procedural framework. DATA incorporates by reference numerous procedural provisions of the Illinois Retailers’ Occupation Tax Act and the Uniform Penalty and Interest Act, meaning audit, assessment, interest, and related administrative procedures familiar from Illinois sales and use tax practice may govern DATA administration by default.[20] However, the Department itself does not have the ability to enforce felony penalties. Such matters would likely be prosecuted by the Illinois Attorney General’s Office working with the Department of Revenue’s Criminal Investigation Division. Registration certificates are valid for one year and automatically renew absent Department action, and brokers aggrieved by a Department registration decision have 30 days to protest and request a hearing.[21]


• Interstate commerce savings clause. Brokers may argue that DATA’s express carve-out for business that “may not, under the Constitution and Statutes of the United States, be made the subject of taxation by this State” provides a basis for challenging the tax as applied to decentralized, multi-jurisdictional blockchain transactions. In addition, the provision may give rise to arguments regarding the sourcing of receipts because the state may tax only receipts fairly attributable to Illinois.


• Broad “purchase price” definition. DATA defines “purchase price” expansively as the consideration paid “valued in money, whether received in money or otherwise, including cash, gift cards, credits, and property,” calculated without any deductions for cost of materials, labor, or other expenses. This broad definition includes “any and all charges that the customer pays related to or incidental to the receipt of digital asset business activity,” which may be viewed as complicating the interplay between the “value” of the digital asset and the broker’s fee structure.


• Undefined “value.” Because DATA imposes tax on the “value” of the digital asset without defining that term, taxpayers may face uncertainty regarding the tax base. The statute does not specify whether value should be determined based on fair market value at the time of the transaction, a daily average, cost basis, or another methodology. That issue may require resolution through Department rulemaking, along with considerations of constitutional limitations, including fair apportionment of the tax itself. For example, questions may arise where an individual purchases a digital asset in Illinois and subsequently relocates to another state on the same day. A more fundamental ambiguity precedes the valuation question. Section 3-20(a) imposes the tax on “the value of the digital asset,” whereas the collection mechanics in Section 3-35(b) describe the tax as an add-on to the “purchase price,” a defined term referring to the consideration paid to the broker for services rather than the value of the underlying asset moved.[22] Depending on how the Department reconciles these provisions, brokers could be required to collect tax based on either the value of assets transacted (which may bear no relationship to the fee charged) or, alternatively, based on the fee itself, a materially narrower base.

Next steps

Companies are encouraged to begin assessing whether their activities constitute “digital asset business activity” under Section 3-15. They may also consider whether the interstate commerce savings clause could apply to their particular facts and circumstances, particularly if their transactions involve decentralized protocols or multi-state activity. As developments progress, companies may monitor Department rulemaking regarding valuation methodology, sourcing standards, and recordkeeping requirements, and they may consider submitting comments during the Illinois Administrative Procedure Act rulemaking process.

 

_{[1] Digital Asset Tax Act, Pub. Act 104-0468, art. 3, § 3-20 (Ill. 2026) (enacted as S.B. 3019, 104th Gen. Assemb., Reg. Sess. (Ill. 2026)).}

_{[2] Pub. Act 104-0468, art. 3, §§ 3-30(a), 3-55 (Ill. 2026).}

_{[3] Id. § 3-20(c) (“The tax imposed in this Section is not imposed upon the privilege of engaging in any business in Interstate Commerce or otherwise, which business may not, under the Constitution and Statutes of the United States, be made the subject of taxation by this State.”).}

_{[4] Pub. Act 104-0468, art. 3, § 3-20(a) (Ill. 2026).}

_{[5] Id. § 3-15 (defining “digital asset business activity” as “any single occurrence of exchanging, transferring, or storing a digital asset as part of a business or on behalf of a customer”).}

_{[6] See id. §§ 3-65, 3-70 (authorizing Department rulemaking under the Illinois Administrative Procedure Act). No implementing regulations have been adopted as of the date of this alert.}

_{[7] Id. § 3-15 (defining “digital asset” by cross-reference to Section 1-5 of the Digital Assets and Consumer Protection Act, 205 ILCS 731/1-5).}

_[8] Id.

_{[9] Id. § 3-25 (establishing rebuttable presumption of Illinois location based on home address, mailing address, IP address, or “place of primary use” data; placing burden of proof on the broker).}

_{[10] Id. § 3-15 (defining “digital asset broker maintaining a place of business in this State”).}

_[11] Id.

_[12] Id.

_{[13] Id. § 3-35(b) (requiring tax to be “stated as a distinct line item separate from the purchase price” and collected by brokers “maintaining a place of business in this State”).}

_{[14] Id. § 3-40(a) (requiring monthly electronic returns “on or before the 20th day of each month for the preceding calendar month”).}

_{[15] Id. § 3-15.}

_{[16] Id. §§ 3-20(c), (d).}

_{[17] Id. § 3-20(d) (exempting services provided to the United States or any agency or instrumentality thereof).}

_{[18] Compare id. § 3-30(a) (registration required of “any person” engaging in business as a digital asset broker), with id. § 3-15 (collection/remittance obligation triggered only upon meeting the $100,000 gross receipts threshold for remote brokers).}

_{[19] Id. § 3-55 (classifying violations as a Class 3 felony; prosecution may commence within five years of the violation).}

_{[20] Id. § 3-60.}

_{[21] Id. §§ 3-30(b), (d).}

_{[22] Id. § 3-15 (defining “purchase price)”; compare id. § 3-20(a), with id. § 3-35(b).}