Illinois sought to boost revenue with a sudden grab at assets changing hands in crypto transactions, catching the industry off guard in June. Now the entire crypto sector, from a16z to Uniswap and many others, appears to be opposing the move, telling the court why the state’s hopes for a cash influx are misplaced.
A brief filed Thursday by 18 crypto businesses and organizations argues that the planned tax, which is currently on hold while legal challenges are heard in court, fails to account for a complex crypto ecosystem where the meaning of "digital asset business activity" is not as easy to pin down as the state might like. Illinois wants to impose a 0.2% tax on crypto activity involving firms with more than $100,000 in receipts. The state recently agreed to delay implementation by six months from Jan. 1.
The latest brief, also signed by Aave Labs, Chainlink Labs, Paradigm, Phantom Technologies, Stand With Crypto and the DeFi Education Fund, says the tax law’s definitions leave the signatories unsure who qualifies as a crypto broker and which activities are taxable. They argue that the law is too vague to be legally permissible and discriminates against the digital assets industry.
According to the brief, the Illinois Department of Revenue would be "sweeping in developers, providers and other network participants who would not be able to collect a tax from customers they do not have, direct payments from assets they do not control or determine a transaction’s location from information they do not have,".
The industry argues that the tax appears to cover "people who write software that others use to transact for themselves,", even though those developers have no traditional customers and no access to or knowledge of users’ assets.
"Under the agency’s erroneous interpretation, developers and providers that lack custody of user assets, customer account relationships or access to customer-location information could face obligations they have no practical ability to perform," the industry argued in a document known as an amicus brief, through which entities affected by a court case can offer their views. "Unlike a traditional broker, who is a person responsible for carrying out transfers of digital assets on another’s behalf, developers and providers of non-custodial software keep no accounts or customer records and have no technological ability to collect or store them."
