Illinois 0.2% Crypto Tax Risks Clash with Federal Rules, Selig Warns

CFTC Chairman Michael Selig called Illinois’ new 0.2% tax on digital asset transactions a “sin tax” on blockchain technology, arguing the state is penalizing one technology while ignoring identical economic activity in the traditional financial system.

Selig published the criticism in a Washington Times op-ed. He pointed out that transferring $10,000 in crypto would trigger a $20 tax per side, while moving the same value in dollars or securities would owe nothing. Illinois Governor J.B. Pritzker signed the Digital Asset Tax Act into law as part of a $55.9 billion budget package. The tax applies to exchanges, transfers, and storage. It does not depend on whether the user made a profit or loss.

Coinbase vice president of tax Lawrence Zlatkin said an Illinois resident who buys $10,000 in crypto and sells it at the same price would owe $40 across both trades despite breaking even. The Illinois Policy Institute estimates the tax will generate roughly $60 million in state revenue next year.

Selig’s central argument is that the tax treats identical economic activity differently based solely on the technology used. “Transferring the same value in a non-crypto asset format would not result in a tax,” he wrote. He compared the move to a hypothetical tax on internet transactions in the 1990s, saying such a policy would have strangled e-commerce before it matured.

Registration and felony risk

The law requires brokers to register with the state before doing business with Illinois customers starting January 1, 2027. Registration kicks in immediately upon any Illinois business activity. A $100,000 gross receipts threshold determines when tax collection begins. Noncompliance carries a Class 3 felony charge, with penalties of up to five years in prison and $25,000 in fines.

Industry groups, including the Crypto Council for Innovation, said the law contains few meaningful exemptions for common activities such as transfers between a user’s own accounts. They argued Illinois should have waited for Congress to finish work on a national digital asset framework before creating its own rules.

Law firm Jones Day said the tax could face legal challenges under the U.S. Constitution’s Commerce Clause and the Internet Tax Freedom Act. The firm also noted that Illinois tax officials have not yet released rules explaining how to value assets or what counts as taxable activity.

Predictions market collision

The state’s move on digital assets is not the only regulatory conflict with the CFTC. Illinois regulators have classified prediction markets as illegal gambling, putting the state on a direct collision course with the agency, which claims exclusive federal jurisdiction over those products. Selig said in a statement earlier this year that his agency would no longer tolerate states establishing “statewide prohibitions” on prediction market products.

Prediction market platform Kalshi sued Illinois in late June to block new taxes and licensing requirements, arguing the state violated the Supremacy Clause of the U.S. Constitution. Legal experts expect the question to reach the Supreme Court eventually.

Selig argued that the state law runs counter to current federal momentum. Congress is working on the CLARITY Act, which aims to establish clear federal rules for crypto markets. Illinois, he said, chose to move in the opposite direction.

The tax takes effect in six months. Illinois tax officials have not published compliance guidance as of this writing.