Illinois has agreed to seek a six-month postponement of its 0.2% crypto transaction tax, moving the proposed enforcement date from January 1, 2027, to July 1, 2027. According to a court motion agreed upon by both parties, the state government and industry plaintiffs have requested the court to approve this extension.

The court motion jointly submitted by both parties requests the issuance of a preliminary injunction to prevent the tax from taking effect in January. Illinois, together with the plaintiff Digital Chamber of Commerce ( Digital Chamber ) and the Illinois Blockchain Association ( Illinois Blockchain Association ), has made this request, suggesting July 1, 2027, as an alternative date.

The document states that both parties agree to seek relief from the court, but this does not imply a final ruling on the legality of the tax. According to this timeline, enforcement will be postponed while the legal challenge continues.

Illinois' encryption tax has been postponed due to opposition over compliance issues

In their previous application for a preliminary ban, the Blockchain Association and the Crypto Innovation Committee ( Crypto Council for Innovation ) stated that in order to meet the deadline in January, their organizations and members would have to spend millions of dollars on compliance.

According to the ban applications from the Blockchain Association and the Crypto Innovation Committee, companies are faced with a significantly compressed timeline and need to set up systems to comply with the requirements of the "Digital Assets Tax Law" ( Digital Asset Tax Act ). The two organizations also stated that even if companies complete these tasks before implementation, the industry will still suffer irreparable damage.

Their application aims to prevent the court from enforcing that tax during the trial of the underlying lawsuit. As reported on September 30, these groups filed an injunction application on September 9 in Sangamon County, alleging that the law violates federal and Illinois state laws.

In July, the Digital Chamber of Commerce posed another independent challenge. In its complaint, the organization argued that Illinois imposed different tax treatments on similar financial activities merely because ownership was recorded or transferred through blockchain technology.

According to a report by crypto.news on July 22, a digital trade association filed a constitutional challenge in Illinois, requesting the court to declare the law "invalid and unenforceable." The organization believes that such distinctions unfairly target digital asset transactions.

The controversial tax is aimed at transactions, not profits.

According to the framework described in previous reports, Illinois will impose a tax of 0.2% on digital asset activities involving brokers. Exchanges, transfer, and custody services may all fall within its scope, not limited to transactions that generate investment income.

According to tax consulting firm BDO, brokers affected by this requirement need to register with the Illinois Department of Revenue, collect the tax separately, and submit reports on a monthly basis. BDO also indicates that certain companies outside of the state may be included in this scope if their annual income from Illinois clients reaches $100,000.

For token holders, the implementation rules proposed by the state government cover more than just the buying and selling of cryptocurrencies. The draft from the tax department considers stablecoins to be covered digital assets, while excluding NFT.

In a report on the draft crypto tax on September 30th, the publication stated that if exchanges charge a fee for transfers from exchange wallets to customers' personal wallets, such transfers may be subject to taxation. According to the draft, different rules will apply to direct transfers between personally controlled wallets without the involvement of a paid broker.

The tax authorities also distinguish between the DeFi protocol fees and the payments made solely to liquidity providers. According to the proposed rules, platforms that charge protocol fees may be identified as brokers, whereas the network fees paid to miners or verifiers are not considered as qualified consideration.

The Illinois Department of Revenue stated in a notice on September 28 that it would accept comments until October 30. The department mentioned that this draft has not yet been submitted to the Secretary of State, nor to the Joint Committee on Administrative Rules.

Federal encryption tax legislation has been passed by a House committee

At the federal level, on September 16th, the House Ways and Means Committee (House Ways and Means Committee) approved the Digital Assets Tax Certainty Act (Digital Asset Tax Certainty Act H.R .10357). The committee advanced this crypto tax proposal with a vote of 38 in favor and 5 against, for consideration by the entire House of Representatives.

According to the text described in this report and approved by the committee, taxpayers will not recognize gains or losses when using qualified digital assets to pay qualified network fees or transaction fees of no more than $10. This provision will cover certain verification, brokerage, transaction, and liquidity fees, but is subject to specific restrictions.

This proposed exception is aimed at qualified fees, rather than a general exemption for small-scale cryptocurrency purchases. According to the bill, certain brokers, traders, verifiers, and taxpayers with high transaction volumes will be subject to exclusion clauses.

Other provisions cover digital asset lending, stablecoins, mining, staking, broker reporting, and wash trading. According to estimates by the Joint Tax Commission cited in the report, the entire bill is expected to generate a net of $500 million in federal revenue over the fiscal years 2027 to 2036.

The approval by the committee does not mean that the measure has become law. As reported on September 16th, both houses of Congress need to pass exactly the same legislation before it can be sent to the President.

CLARITY Negotiations and tax reform remain two separate tracks

Prior to the federal tax vote, on September 15th, the Senate rejected the procedure to terminate debate on the motion to advance the CLARITY legislation. According to official roll-call votes cited in previous reports, the motion received 49 votes in favor and 50 votes against, falling short of the 60 votes required to initiate debate.

Different from H.R.10357, CLARITY deals with the structure of the digital asset market, as well as the division of responsibilities between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

After the voting failure, 7 Democratic senators pledged to continue advancing cross-party CLARITY negotiations. In their statement on September 16, they stated that this result "is not" the end of their work on this legislative effort.

In a comment published on September 17th, Neil Bergquist (CEO of Coinme), stated that federal market structure legislation will not eliminate the licensing requirements for crypto companies at the state level. He explained that the bill mainly concerns asset classification and federal regulation.

According to the statements of these senators, Kirsten Gillibrand ( Kirsten Gillibrand ), Angela Alsonbrooks ( Angela Alsobrooks ), Cory Booker ( Cory Booker ), Katherine Cortez Masto ( Catherine Cortez Masto ), Ruben Gallego ( Ruben Gallego ), Mark Warner ( Mark Warner ), and Raphael Warnock ( Raphael Warnock ) will continue to seek a bipartisan agreement after two years of negotiations.