Miles Jennings, legal counsel at a16z Crypto, criticized Illinois' proposed Digital Asset Privilege Tax Act on X on June 17, arguing the legislation violates federal law by imposing discriminatory taxes on cryptocurrency transactions. The tax applies a 0.2% levy on the exchange, transfer, or storage of digital assets, meaning users pay taxes both when purchasing Bitcoin and when holding it on exchanges. Illinois' legislature passed the budget bill containing this provision on June 1, establishing what Jennings described as one of the most anti-crypto laws in the United States.
a16z Legal Counsel Argues Illinois Tax Violates Federal Law
Jennings stated in his X post that the Digital Asset Privilege Tax Act taxes the exchange, transfer, or storage of digital assets, creating a system where users pay taxes when buying BTC and again when storing BTC on platforms like Coinbase. He argued that no comparable state-level financial transaction tax exists anywhere in the United States for stocks, bonds, or derivatives, making the digital asset tax discriminatory. According to Jennings, this separate taxation scheme for digital assets alone creates potential violations of multiple federal laws.
Tax Structure Applies 0.2% Levy to Digital Asset Transactions
The Illinois legislature passed a budget bill on June 1 that included provisions for a Digital Asset Privilege Tax. The legislation imposes a 0.2% tax on the transaction amount for digital asset trading, transfer, and custody activities. This tax structure applies to all forms of digital asset activity covered under the Act's definition.
Jennings Compares Treatment to Traditional Financial Assets
Jennings criticized the tax's foundation as irrational, stating that stocks, bonds, and derivatives traded in paper form are not taxed, while identical assets recorded on blockchain face taxation solely because of the recording method. He compared this approach to imposing taxes on people simply for using email. Jennings noted that Illinois previously demonstrated a constructive approach to blockchain technology through its Digital Assets and Consumer Protection Act, but characterized the new tax legislation as a complete 180-degree reversal of that stance.
Concerns Raised About Impact on Blockchain Innovation
Jennings warned that Illinois is choosing to punish entrepreneurs and citizens who want to utilize digital assets rather than embracing the innovation and cost-reduction benefits blockchain can provide to ordinary citizens. He stated that when state governments discriminatorily tax specific assets, driving developers and users to other regions, everyone ultimately suffers. According to Jennings, this approach could result in innovative companies and talent leaving the state.
FAQ
What tax rate does Illinois' Digital Asset Privilege Tax Act impose on cryptocurrency transactions?
The Illinois Digital Asset Privilege Tax Act imposes a 0.2% tax on the transaction amount for digital asset exchange, transfer, and custody activities, as passed by the Illinois legislature on June 1.
Why does a16z's Miles Jennings argue the Illinois digital asset tax violates federal law?
Miles Jennings argues the tax violates federal law because it discriminates against digital assets by imposing state-level transaction taxes that do not exist for stocks, bonds, or derivatives anywhere in the United States, creating a separate taxation scheme solely for blockchain-recorded assets.
