An exceptionally broad alliance – comprising the U.S. Department of Justice, the largest lobbying group on Wall Street, the American Chamber of Commerce, and a number of well-known cryptocurrency companies – has come to support a legal challenge against Illinois’ first digital asset transaction tax law.

These institutions submitted legal documents to the Illinois court this month in support of the lawsuits filed by Crypto Council, for, Innovation, and Blockchain Association. The two institutions requested the judge to rule that the state's "Digital Assets Tax Law" is invalid and to permanently prohibit its enforcement.

This tax regulation states that whenever customers in Illinois trade, transfer, or store digital assets through brokers, a tax of 0.2% is levied on the full value of those digital assets. This applies even in cases where there is no sale, profit, or change in ownership.

Critics say this may be one of the harshest crypto taxes in the United States, partly because Illinois does not impose a similar tax on the dollar, gold, stocks, or any other assets, and neither do other states.

On November 6th, the Department of Justice submitted a statement of interest, claiming that this tax measure weakens federal policies and the United States' leadership in the field of digital assets. It pointed out that the measure is vague and discriminatory as it targets crypto assets specifically, while other assets do not face such treatment.

The American Chamber of Commerce and the Securities Industry and Financial Markets Association (SIFMA) also submitted amicus curiae briefs to the court. SIFMA represents hundreds of brokerage firms, banks, and asset management companies. Both warn that the impact of this tax will extend far beyond crypto-native platforms and will also affect an increasing number of traditional banks, custodian institutions, and advisors that offer digital asset products.

Another petition submitted on November 11 brought together important participants from the crypto industry, led by DeFi Education Fund, Andreessen Horowitz, Paradigm, and Uniswap. Aave Labs, Chainlink Labs, Solana Policy Institute, Phantom, Jito Labs, Mult, token issuers in, Capital, and Stand With Crypto were also among them.

This document argues that the definition of relevant terms in this law is too vague and may extend to software developers and decentralized protocols; these entities do not hold customer funds, nor are they able to identify users, or know where transactions take place. The document also points out that it is estimated that 2.64 million residents of Illinois hold digital assets, ranking fifth among all states.

Crypto Council for Innovation The Chief Executive Officer, Ji Hun Kim and Blockchain Association the Executive Directors, stated in a joint statement: 'This tax is unclear, discriminatory, unconstitutional, and will harm the future of the financial industry.'

This challenge began in August. As Decrypt reported earlier, Illinois agreed in October to suspend this tax until July 1, 2027, in order to buy time for the ongoing litigation.