On September 28, 2026, the Illinois Department of Revenue (the “Department”) released draft proposed rules (the “Draft Proposed Rules”) implementing the Digital Asset Tax Act (the “Act”), which was enacted as part of Senate Bill 3019. Notably, the Draft Proposed Rules have not yet entered Illinois’ formal rulemaking process and the Department is accepting comments through October 30, 2026.
The Act imposes a 0.2% tax on the value of a digital asset involved in a taxable digital asset business activity. Although the tax originally was scheduled to take effect January 1, 2027, the Circuit Court of Sangamon County has entered an agreed preliminary injunction delaying its effective date until July 1, 2027 in connection with separate actions brought by the Chamber of Digital Commerce and the Illinois Blockchain Association. For additional background on the Act and its novel transaction-based structure, see our article titled “Illinois Enacts First-of-Its-Kind Cryptocurrency Transaction Tax.”
The Draft Proposed Rules address several significant questions left open by the Act and provide additional guidance on key aspects, including the treatment of tokenized securities and commodities, sourcing, decentralized finance (“DeFi”), non-fungible tokens (“NFTs”), valuation methodologies, and certain storage arrangements. While the Draft Proposed Rules provide helpful clarity in several areas, they also raise important questions that may warrant further clarification or modification before entering the formal rulemaking process. The Draft Proposed Rules contain numerous noteworthy provisions. Several of the most significant are discussed below.
Definition of “Digital Assets”: The Draft Proposed Rules provide that digital assets must be “blockchain-based” and include traditional cryptocurrencies, stablecoins, memecoins, blockchain-based central bank digital currencies, and “other forms of digital assets that are representative or pegged to a physical good or currency.” The proposed rules would also exclude assets such as tokenized securities and commodities. This treatment may require clarification as the proposed rules separately state stablecoins pegged to commodities or other financial instruments are taxable digital assets without explaining how the Department will distinguish between those categories.
Definition of Digital Asset Broker: The Draft Proposed Rules include within the definition of digital asset broker the following: centralized exchanges; DeFi exchanges that collect protocol or other fees for the exchange itself; and custodians, broker-dealers, digital payment processors, and other entities that manage and directly keep custody of customers’ digital assets.
Definition of Digital Asset Business Activities: The Draft Proposed Rules define a “single occurrence” of exchanging, transferring, or storing a digital asset as arising when a digital asset moves “as denoted by an entry on a blockchain or internal ledger.” However, it is unclear what the Department means by “internal ledger” in this context, e.g., a private blockchain or a business’s internal books and records.
Principal Trading & Common Custodial Wallets: The Draft Proposed Rules provide that transfers across a common custodial wallet with mere updates to the balances on each customer account without updates to the blockchain are not taxable transactions. Additionally, principal trades are exempt if they are “peer-to-peer transactions without the use of intermediaries and with no valuable consideration.” This is noteworthy because the Act does not specifically condition the principal trading exclusion on the absence of valuable consideration.
Storage: The Draft Proposed Rules provide that storage is taxable once when consideration is paid specifically for storage and that “[a]dditional payments for storage do not create a taxable event under the Act unless further movement of the asset occurs.” However, these rules would create uncertainty by subsequently providing that the tax “will only apply again if subsequent consideration is paid for the continued storage of the digital asset.”
Sourcing clarity: One of the most significant areas of uncertainty under the Act concerns how digital asset brokers determine a customer’s location for purposes of sourcing digital asset business activity to Illinois. The Draft Proposed Rules provide additional guidance by defining “place of primary use” as the street address representative of where the customer’s digital asset business activity primarily occurs. They also provide that documentation required by federal agencies, such as a customer’s IRS Form W-9, may be used to establish whether a customer is located in Illinois. However, questions remain, including: how to determine the “place of primary use” for institutional customers; how to resolve conflicting location information; what to do when customer-location information is unavailable, among others.
“Look-through” sourcing: The Draft Proposed Rules also introduce a “look-through” sourcing concept for transactions conducted through intermediaries. Although this approach may be helpful, it raises practical questions for digital asset brokers, such as how a broker is expected to determine that it is dealing with an intermediary, what customer-location information it must obtain, and which party is responsible for collecting the tax in this context.
Valuation: The Draft Proposed Rules provide that value is measured in U.S. dollars at the time the digital asset business activity is completed. The broker’s own exchange spot price may establish value, and a benchmark rate from a regulated market-data provider may be used when the broker cannot provide a value. While helpful, the proposed rule leaves important questions unanswered, including: precisely when an activity is “completed;” which spot price should be used where multiple prices are available across different exchanges; how asset-for-asset exchanges should be valued; and how failed or reversed transactions should be addressed.
Recordkeeping: The Draft Proposed Rules also impose detailed recordkeeping requirements, including a requirement to maintain account information sufficient to demonstrate the movement of digital assets, “including private keys.” Given the sensitive nature of private keys and their role in authorizing transactions, this requirement is particularly troublesome.
Practical Implications and Important Next Steps
First and foremost, impacted businesses and taxpayers should continue to monitor the pending litigation challenging the Act. Multiple lawsuits have been filed raising constitutional and other challenges. As noted above, the Circuit Court of Sangamon County delayed the Act’s effective date until July 1, 2027. That date also coincides with an important compliance date under the Digital Assets and Consumer Protection Act (“DACPA”), Illinois’ broader regulatory framework governing businesses engaged in digital asset business activity with Illinois residents. Among other requirements, the DACPA establishes a registration regime administered by the Illinois Department of Financial and Professional Regulation with the statutory transition period for registration ending July 1, 2027. The revised effective date therefore more closely aligns implementation of the Act with Illinois’ broader regulatory framework for digital asset businesses.
Even with the additional six months, however, businesses subject to the Act will need to evaluate the significant systems, data, and compliance changes necessary to administer this first-of-its-kind tax if it ultimately takes effect. Businesses and other interested parties may submit comments on the Draft Proposed Rules through October 30, 2026. Because the rules have not yet been filed with the Illinois Secretary of State or submitted to the Joint Committee on Administrative Rules, further opportunities for public participation may arise during the formal rulemaking process.
Contact the Authors: Drew Hemmings and Matt Musano
