Illinois draft rules hit stablecoins and self-custody transfers with 0.2% crypto tax, while some DeFi swaps escape

Illinois moved a step closer to enforcing its 0.2% crypto tax on Sept. 28, when the state’s revenue department released draft rules that include stablecoins, cross-chain bridges and some transfers to self-custody wallets, while exempting NFTs and most fee-free DeFi activity.

The crypto tax is already authorized under Public Act 104-468, signed by Gov. JB Pritzker on June 16, but the implementing regulations remain subject to public review.

The department is accepting comments on the proposed rules through Oct. 30. The regulations have not yet been filed with the Illinois Secretary of State or submitted to the Joint Committee on Administrative Rules.

The draft provides more detail on which assets fall within the crypto tax framework. Stablecoins are included even when they are designed to maintain a relatively fixed value against a fiat currency, commodity or another financial instrument.

The proposed rules state that such assets remain within the definition of digital assets because the relevant statutory exclusions do not cover assets marketed to maintain an effectively fixed nominal value.

“The [digital asset] tax” is the department’s statutory framework for the levy, while the draft rules explain how it applies to specific transactions, according to the Illinois Department of Revenue.

Nonfungible tokens receive different treatment. NFTs are excluded because the underlying state definition does not cover digital representations whose value or utility extends beyond simply functioning as digital assets. The draft also identifies certain tokenized securities, commodities and digital representations of goods as falling within statutory exclusions.

The tax is calculated using the value of the digital asset involved rather than the broker’s service fee. Brokers are expected to determine the U.S. dollar value when the covered activity occurs, using their own spot price or, where necessary, a benchmark from a regulated market-data provider.

DeFi activity could avoid the crypto tax

Decentralized finance transactions would not automatically be subject to the crypto tax under the proposed rules.

The Illinois Department of Revenue distinguishes between fees paid for blockchain processing and fees collected by a platform operating or maintaining a service. Network fees paid directly to miners or validators would not constitute the type of consideration needed to bring a transaction within the levy.

Similarly, swap fees sent exclusively to liquidity providers would not generally make a decentralized exchange a taxable digital asset broker.

The treatment changes when a DeFi platform collects protocol fees for operating or maintaining its service. The draft considers such payments “valuable consideration,” potentially bringing related exchange, transfer or storage activity within the crypto tax.

That distinction could matter for decentralized exchanges using different fee structures. A platform receiving protocol fees may qualify as a digital asset broker under the proposed framework, while a peer-to-peer platform directing swap fees solely to liquidity pools would not meet that definition.

The draft also states that gas fees paid for blockchain processing remain outside the calculation because those payments go directly to miners or validators rather than to the exchange or service provider.

Self-custody transfers may trigger the crypto tax

Moving cryptocurrency between wallets controlled by the same person can also fall under the crypto tax when a broker charges a fee for facilitating the transfer.

Under an example in the draft, an Illinois resident transferring digital assets from an exchange-controlled wallet to a personally managed wallet could incur the levy if the centralized exchange charges for completing the transaction. In that situation, the exchange is treated as providing a transfer service for consideration.

The proposed rules therefore distinguish between the ownership of the assets and the service provided by the intermediary.

A direct peer-to-peer transfer between two personally controlled wallets would generally be treated differently when no broker or paid intermediary is involved. Likewise, an internal bookkeeping adjustment between customer accounts would not constitute a taxable blockchain transaction if the underlying coins remain in the same custodial wallet.

“The tax applies to the value of the digital asset involved,” the draft explains, rather than simply to the amount of a broker’s fee.

Payments for goods can also enter the framework where an intermediary provides a taxable transfer service. For example, if a customer pays a merchant using cryptocurrency held by an exchange and the exchange charges a transfer fee, the transaction can fall within the crypto tax rules.

The merchant itself would not become a digital asset broker merely by accepting cryptocurrency as payment.

Crypto bridges and legal challenges add uncertainty

The draft expressly includes cross-chain bridges within the definition of exchange activity. A bridge that exchanges digital assets from one blockchain network to another can therefore trigger the crypto tax when a qualifying digital asset broker performs the service for consideration.

Other transactions identified in the rules include spot trades, purchases of cryptocurrency using fiat currency and conversions of digital assets back into traditional currency.

The 0.2% rate applies to the value of covered digital assets. A $10,000 taxable transaction, for example, would generate a $20 levy. The charge is based on covered digital asset business activity rather than the customer’s capital gain or loss.

The framework can also reach certain brokers located outside Illinois. Under the draft, a remote broker may be considered to maintain a place of business in the state when gross receipts from covered services sold to Illinois customers reach at least $100,000.

At the same time, the crypto tax faces legal challenges from industry groups. The Blockchain Association and Crypto Council for Innovation asked a Sangamon County court on Sept. 9 for a preliminary injunction blocking enforcement while their lawsuit proceeds. The groups allege that the law violates federal and Illinois law, including provisions concerning internet taxation and constitutional protections. Those claims remain allegations and have not been established by a final court ruling.

The Digital Chamber filed a separate lawsuit in July challenging the measure, arguing that Illinois treats blockchain-based activity differently from comparable traditional financial transactions. The state is defending the enacted legislation.

A separate repeal proposal, HB 5798, remains pending in the Illinois House. The measure would repeal the Digital Asset Tax Act, but the General Assembly’s latest record shows it remains at the filing stage.

For now, the next immediate step is the administrative review process. Illinois will accept comments on the draft rules through Oct. 30 before the Department of Revenue proceeds with formal rulemaking. Until that process is completed, the precise implementation of the crypto tax remains subject to potential regulatory changes, legislative action or court intervention.

“The current version has not yet been filed with the Secretary of State or submitted to JCAR,” the department said in its explanation of the draft rules.