Illinois has published draft regulations explaining under what circumstances its 0.2% digital asset tax may apply to crypto transactions, wallet transfers, stablecoins, DeFi transactions, and cross-chain activities. The tax is expected to take effect on January 1, 2027.

• Illinois' 0.2% digital asset tax plan will take effect across the state on January 1, 2027.
• The draft rules consider stablecoins to be taxable digital assets, but they completely exclude non-fungible tokens ( NFT ) from the scope of application.
• Unless the platform charges a protocol fee or other eligible consideration for payment, DeFi transactions are exempt from taxes.
• When brokers charge clients a completion fee, transfers from the exchange to self-hosted wallets may also be subject to taxation.
• Illinois will accept comments until October 30 before officially submitting the proposed tax regulations.

The Illinois Department of Revenue stated that the proposal announced on September 28 is still in the draft stage and will be open to public comments until October 30. The department has not yet submitted the rules to the Illinois Secretary of State, nor to the Joint Administrative Rules Commission.

The underlying "Digital Assets Tax Law" has now become law. Governor JB Pritzker signed the bill on June 16th, and as part of Public Act No. 104-468, the new tax will come into effect next year. The law stipulates that a 0.2% tax will be levied on the value of relevant digital assets when Illinois customers receive covered trading, transfer, or custody services from digital asset brokers.

The Illinois crypto tax will cover stablecoins, but not NFT.

For ordinary users, one of the most clear points in the draft is regarding stablecoins.

The proposed rule classifies stablecoins as digital assets, even if their design purpose is to maintain a fixed value relative to fiat currency, commodities, or other financial instruments. Illinois officials believe that the legal exclusion of certain non-investment digital representations does not apply to those assets that are advertised as maintaining an almost fixed nominal value.

NFT is treated differently. According to the draft from the tax bureau, transactions involving non-fungible tokens are not within the scope of taxation, as state laws define and exclude digital representations whose value or use is not solely limited to their existence as digital assets, including artworks, collectibles, and intellectual property.

Tokenized securities and commodities also appear in the same set of statutory exclusions described in the draft. The proposed rules classify them as digital equivalents of tangible or intangible commodities that have independent value or use.

The tax amount itself is calculated based on the value of the digital assets involved, rather than just on brokerage fees. The draft states that brokers should determine this dollar value at the completion of the covered activities, using their own spot prices, or, in the absence of such, using benchmark prices provided by regulated market data providers.

Some DeFi transactions can avoid a 0.2% fee.

DeFi Activities will not automatically trigger the Illinois crypto tax.

The draft states that when users do not provide what are referred to as “valuable consideration” to digital asset brokers, transactions on decentralized exchanges are generally not subject to taxation. Network fees paid to miners or verifiers are not included, nor are exchange fees that go solely to liquidity providers.

However, if the DeFi platform charges fees for operational or maintenance services, the outcome is different. The tax authorities classify the agreement fees charged by the platform as valuable consideration, which may result in related transactions, transfers, or custodial activities being subject to taxation.

In another part, decentralized exchanges that charge protocol fees can be identified as digital asset brokers. However, peer-to-peer platforms that only pay exchange fees to liquidity pools do not meet this definition under the proposed rules.

Network Gas fees are still not included in the tax base, as the draft defines them as payments made directly for blockchain processing and paid to miners or verifiers, rather than fees collected by exchanges or digital asset service providers.

Transferring encrypted assets to one's own wallet may also be subject to taxation.

The rule provides an example that directly involves self-hosting.

Residents of Illinois who transfer digital assets from wallets controlled by exchanges to wallets managed personally will face this tax as long as the centralized exchanges charge a fee for completing the transfer. The tax authority considers such exchanges to be brokers providing services for the transfer of valuable consideration.

Ownership does not necessarily have to change. Even if it is a transfer between two accounts under the same customer's name, as long as the broker charges a fee and the transfer is recorded on the blockchain, it may still be subject to taxation.

Direct peer-to-peer transfers are different under the draft regulations. If two individuals transfer encrypted assets between their own wallets without the involvement of brokers or other paid intermediaries, this tax does not apply.

The rules also draw another line of demarcation regarding internal account bookkeeping. In one example, a bank adjusted the balances between two customer accounts, yet the actual tokens remained in a jointly managed wallet. Since there was no movement on the blockchain, the tax authorities stated that this transaction did not constitute a taxable event.

When third-party services are involved, purchasing goods with encrypted assets may also fall under this framework. An example given in the proposal is that a customer in Illinois pays a merchant from a wallet managed by an exchange. If the exchange charges a transfer fee to the customer, then the transfer of that digital asset will be taxed.

According to the proposed rules, retailers that accept cryptocurrency payments will not become digital asset brokers merely by accepting cryptocurrency as a method of payment.

Encrypted cross-chain bridges may also be considered taxable exchanges.

Cross-chain bridges are explicitly included in the draft definition of exchange activities.

Illinois describes a cross-chain bridge as an mechanism for exchanging digital assets from one blockchain network to another. When digital asset brokers charge a fee for this service, a tax of 0.2% may apply to the value of the relevant assets.

Spot trading, purchasing cryptocurrencies with fiat currency, and then exchanging them back for traditional currencies are also listed as examples of other exchange activities. Settlement of derivatives involving physical delivery may also fall within the scope of these rules, including cash-settled derivatives settled in stablecoins; however, derivatives settled in fiat currency are excluded under the current draft.

The statutory tax rate remains at 0.2%. For example, for $10,000 in covered digital assets, the tax amount would be $20, regardless of whether the customer's profit or loss on those assets is positive or negative. This tax rate is based on the business activities related to covered digital assets, not on capital gains.

Some brokers headquartered outside of Illinois may also be included within the state's framework. According to the draft, remote brokers are considered to have a business location in Illinois when the total revenue from covered services sold to Illinois customers reaches at least $100,000.

As previously reported, Illinois' new crypto tax requirement mandates that covered brokers collect and report this tax from their clients once implementation begins. The law that has been passed stipulates that this tax must be listed separately from the price of the service being purchased when it is collected.

The court challenge may affect subsequent progress.

The effective date of January 1st is still stipulated in state law, but this tax is facing several challenges.

On September 9th, the Blockchain Association and the Crypto Innovation Committee applied to Sangamon County Court for a preliminary injunction, requesting a suspension of enforcement during the litigation process. They argue that the tax violates federal and Illinois state laws and stated that businesses have already invested funds in compliance systems. As of the latest available information, there are no reports indicating that the enforcement of this measure has been prohibited in Illinois.

In related reports, these two crypto organizations sued Illinois in August, seeking to stop this 0.2% tax. Their claims include alleged violations of the federal Internet Tax Freedom Act as well as constitutional protections. These allegations were made by the plaintiffs and have not yet been confirmed by a final court ruling.

Digital Chamber filed another lawsuit in July. As previously reported by crypto.news, the organization believes that Illinois is illegally treating blockchain-based activities differently from similar traditional financial transactions. Illinois, on the other hand, is defending a law that has been passed and is still in effect as planned, unless it is repealed, amended, or stopped by a court.

A repeal proposal is still awaiting review in the Illinois House of Representatives. HB Bill 5798 aims to repeal the Digital Assets Tax Law, but the latest records from the state legislature show that the proposal is still in the submission phase, and it has gained additional co-sponsors in September.

The most urgent administrative deadline has arrived first. The Illinois Department of Revenue is currently accepting comments on the draft, with the deadline being the end of business on October 30th; thereafter, these rules still need to go through Illinois' formal rule-making process. The department has made it clear that the current version has not yet been submitted to the Secretary of State, nor to JCAR.