Illinois has become the first state in the nation to tax cryptocurrency transactions, imposing a 0.2% levy on digital asset trades starting Jan. 1 — and the tax applies even when investors lose money. According to a new report from the Illinois Policy Institute, Gov. J.B. Pritzker signed the measure into law as part of the fiscal 2027 state budget in June. The tax covers transactions in bitcoin, other cryptocurrencies and NFTs, and applies to exchanges, transfers and custodial services.
The law targets any digital asset broker with a physical presence in Illinois, as well as brokers grossing $100,000 or more annually in digital asset receipts with Illinois residents. The report states that affected businesses include crypto exchanges, wallet and custody providers holding customer assets, and firms transmitting digital assets between accounts. Compliance requires brokers to collect and retain customers' personal online transaction history, account information, mailing address, IP address and other data to confirm Illinois as the customer's primary location. Because the tax targets transactions rather than profits, brokers must collect it even when a trade loses money or when assets are transferred between accounts. For gains, the new tax will be added to Illinois' existing 4.95% individual income tax on capital gains. Lawmakers expect the tax to generate $60 million annually.
The report finds that research on traditional financial transaction taxes shows they reduce trading volume and market liquidity, making it harder for buyers and sellers to find ideal pricing and increasing market volatility. Industry voices warn the new tax will make Illinois "a uniquely hostile business environment for digital asset entrepreneurs and the startup community surrounding them," according to the report. The report also notes the tax could face legal challenges, as digital asset brokers might argue that singling out their activity over traditional financial instruments "unfairly discriminates against the digital medium."
The timing compounds challenges for crypto businesses in Illinois. The state enacted the Digital Assets and Consumer Protection Act last year, requiring certain startups to register by paying a $5,000 application fee, hiring a full-time compliance manager and creating written compliance policies. The report warns that while the law targets cryptocurrencies, its broad language could be interpreted to include electronic transfers of traditional financial assets like stocks, options contracts and index funds — an ambiguity that will likely be resolved during rulemaking before the law takes effect. A volatile digital currency market resulting from the tax could make it harder for Illinois residents to predict investment outcomes in the sector, potentially driving both businesses and traders to more favorable states.