Let me walk you through the most ordinary thing a person can do with Bitcoin, and count the taxes as we go.
You open your exchange app and buy $500 of Bitcoin. You leave it on the exchange for a while, the way most people do. Later, you move it to a wallet you control. That is the whole story. One purchase, one holding period, one move. No sale. No profit. Five hundred dollars became five hundred dollars of Bitcoin, sitting in a different place.
Now count the taxable events under the Digital Asset Tax Act.
Event one: the purchase. The Act taxes “the privilege of receiving any digital asset business activity” at 0.2% of the value of the digital asset involved (Section 3-20). Buying through an exchange is squarely that. Tax on the $500 buy: one dollar. Your broker is required to collect it from you and show it as a separate line item on your receipt (Section 3-30).
Event two: the holding. Here is where it gets strange. “Storing” a digital asset for a customer is its own category of taxable business activity. Not the fee you pay for custody. The storage itself, measured against the value of the asset being stored. The exchange holding your $500 is, as the statute is written, a taxable service you are receiving.
Event three: the move to your own wallet. The Act defines “transfer” to include moving a digital asset from one account of a customer to another account of the same customer (Section 3-15). We covered this in June: the law taxes you for moving money from your own left pocket to your right. But notice what it does in combination with events one and two. The same $500, which was already taxed when you bought it and taxed while it sat there, is taxed again on its way out. Move it back later for safekeeping, and that is a fourth event.
None of these events is a sale. None produces a gain. In three of them, nothing changes hands at all except location. And each one is measured against the full value of the asset, not against any fee, spread, or increment. The base does not shrink as the events stack. It just gets taxed again.
The multiplier nobody can calculate
It gets worse, because one of the three events has no defined size.
How often does “storage” happen? Is holding your Bitcoin for a year one taxable event, or twelve monthly ones, or three hundred and sixty-five daily ones? The statute does not say. Tax practitioners at national firms have flagged exactly this: the law never specifies whether custody creates a single taxable occurrence, a recurring monthly one, or something else entirely, and the Department of Revenue has issued no rules or guidance resolving it. The lawsuit filed last month, which we broke down two weeks ago, makes the same point at the level of a constitutional claim: a statute this open-ended may not give the people it binds fair notice of what they owe.
Run the arithmetic on the open question and you see the stakes. If storage is one event, holding $10,000 of Bitcoin costs $20 in tax. If storage is a monthly event, holding it costs $240 a year, every year, on an asset you never touched. That is not a 0.2% tax. That is a 2.4% annual wealth tax on standing still, and nothing in the statute’s text rules it out. I am not predicting the Department will read it that way. I am pointing out that seven months before felony-backed enforcement begins, nobody can tell you which reading is the law.
There is one more compounding device worth knowing about. The statute’s definition of “sale” provides that when digital asset business activity is sold as a bundle of separate services, each service counts as its own individual sale (Section 3-15). Whatever else that clause does, it points in one direction: more events, not fewer.
What we are not claiming
To be clear about the boundary of the charge. The problem here is not the 0.2% rate. A modest, clearly defined tax on genuine sales, whatever you think of it as policy, would at least be an ordinary tax: one transaction, one taxable event, one number you can compute in advance. You could argue about it the way people argue about any tax.
That is not what Illinois built. Illinois built a tax where a single ordinary interaction generates multiple taxable events, where each event is measured against the whole asset rather than any gain, and where the recurrence of one event category is left undefined with criminal penalties attached to getting collection wrong. The headline rate is the part of this law that matters least. The event structure is the tax.
And this is the same defect we keep finding from different angles. A statute that taxes a self-transfer doesn’t understand that no transaction occurred. A statute that can’t say when storage is taxed doesn’t understand what custody is. The drafters modeled “a digital asset transaction” as one thing, a purchase on an exchange, and then wrote definitions that sweep in everything the technology actually does. When you tax a mental model instead of the real thing, the tax multiplies in places the model never showed you.
What you can do
A court may eventually answer some of these questions. The General Assembly could answer all of them: House Bill 5798, filed in June, would repeal the Act outright, and it is sitting in Springfield right now. Only one of those rooms has a seat for you.
If the event structure described above strikes you as something your representatives should have to defend, tell them so, in your own words. Four sentences is enough: you are a constituent, you understand the new digital asset tax can tax a single purchase multiple times including transfers between a person’s own accounts, you believe a tax this novel deserves a hearing and a fix, and you are asking where they stand on HB 5798. Find your State Senator and Representative here: [FIND MY LEGISLATOR].
And if you want to follow this series as the January 1 effective date approaches, consider becoming a member for only $21. Next week we take up the felony question: what it means to attach prison time to rules that have not been written. [BECOME AN IBC MEMBER]
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