The usual caveat: I’m not a lawyer and this isn’t legal advice. What follows is public records and published opinions, and I’ve linked what I can so you can check me. If I’ve gotten something wrong, tell me. That’s the whole point of writing it down.
Back on July 4, and again on July 25, I made an argument about the Digital Asset Tax Act and the federal Internet Tax Freedom Act. Then I hedged it. Here’s roughly what I wrote:
Because a digital asset essentially only moves electronically, the state will argue there’s no “offline version” of the transaction to compare it to, and therefore nothing is being unfairly singled out.
I still think that was the honest thing to write at the time. I no longer think it’s the strongest available read, and I’d rather say so in public than quietly stop mentioning it.
Two things changed. One is the second lawsuit, filed August 21, which answers the objection head-on. The other is that I went and read a case I should have read in June.
Illinois lost this exact fight in 2013
In 2011, Illinois passed what everyone called the “Amazon tax.” It was a nexus law: if an out-of-state retailer had a contract with someone in Illinois who put a link on their website that sent customers to that retailer, and those referrals produced more than $10,000 a year in sales, the retailer had to start collecting Illinois use tax.
A trade association sued. The Performance Marketing Association (a group representing the small Illinois website owners who ran those links, not the retailers) filed for declaratory and injunctive relief against Brian Hamer, in his capacity as Director of the Illinois Department of Revenue. The Attorney General’s office defended.
Stop and look at that sentence for a second. A trade association. Declaratory and injunctive relief. Against the Director of the Illinois Department of Revenue, defended by the Attorney General. That is the caption on both of the lawsuits filed against this tax in Sangamon County this summer.
The Cook County Circuit Court struck the law down. The case went straight to the Illinois Supreme Court. And on October 18, 2013, in Performance Marketing Ass’n v. Hamer, 2013 IL 114496, the court affirmed (6 to 1, Justice Burke writing) holding the law preempted by the federal Internet Tax Freedom Act.
Not “probably preempted.” Not a trial court in another state. The Supreme Court of Illinois, striking down an Illinois revenue statute, in a suit brought by a trade association against this same office.
Why this matters more than Maryland
You may have seen the Maryland news. On August 14, the Maryland Tax Court struck down that state’s digital advertising tax on three grounds: the Internet Tax Freedom Act, the dormant Commerce Clause, and due process. It’s genuinely significant, and I’ll come back to it.
But I want to be careful about proportion, because a lot of coverage isn’t. Maryland’s is a trial-level decision from another state’s tax court. It doesn’t bind an Illinois judge. The Comptroller has thirty days to appeal and has signaled she intends to, which means the window closes right about now.
Performance Marketing is binding Illinois precedent. If you only have room in your head for one case, it’s that one.
The part of the statute that does the work
Here’s the mechanism, and it’s less intuitive than you’d expect.
The Internet Tax Freedom Act bars states from imposing “discriminatory taxes” on electronic commerce. The Act then defines its terms in a way that matters enormously here.
First, “tax.” The Act’s definition covers not just a revenue-raising measure, but also the imposition on a seller of an obligation to collect and remit somebody else’s tax to the government. That second clause is why Performance Marketing was an ITFA case at all; the 2011 law didn’t create a new tax, it just told more retailers they had to collect an existing one. The state argued that meant it wasn’t really a tax. The court held that under the Act’s own definition, it was.
Now hold that up against the Digital Asset Tax Act. DATA is a new tax on the value of the asset, and it works by requiring brokers to collect it from customers as a separate line item and remit it monthly. It’s a tax under the first clause and a collection obligation under the second. Whatever else is arguable here, “this isn’t a tax within the meaning of ITFA” is not the state’s best road.
Second, “discriminatory.” The Act lists several ways a tax can discriminate. Performance Marketing turned on one of them — imposing a collection obligation on a different person than for similar transactions done other ways. DATA arguably implicates a cleaner one: a tax that isn’t generally imposed on transactions involving similar property, goods, or services accomplished through other means.
Which brings us to the only question that actually decides these cases.
Everything turns on the comparator
At oral argument in Performance Marketing — the recording is public, and it’s worth forty-six minutes of your time if you want to see how these fights actually get decided — one of the justices put the whole case to the Association’s counsel in a single question. Paraphrasing: the state says this is fundamentally different from a newspaper ad. Can you give us any other example we could measure it against that functions the same way?
That is the question. Not “is this tax fair.” Not “is crypto good.” Is there a non-electronic transaction that does the same thing, and does Illinois tax it?
The Association’s answer was performance marketing with promotional codes, the “tell them Arnie sent you” discount code in a newspaper ad or a radio spot. Same function: track which advertisement produced the sale, pay a commission on it. The parties had stipulated that this existed and had been around for decades. Illinois taxed the online version and not the offline one.
The court agreed. Its language is the sentence to remember: the click-through link makes it easier for a customer to reach the retailer, but the link is not different in kind from advertising using promotional codes in Illinois newspapers or Illinois radio broadcasts.
Not different in kind. That’s a test about function, not about plumbing.
And that is exactly what the Maryland court did last month, which is Maryland’s real contribution here. The Comptroller argued that digital advertising is different — different business models, different technical operation, programmatic delivery. The court said the comparison under ITFA is between the transactions and the services themselves, not the machinery behind them, and found digital and non-digital advertising not merely similar but indistinguishable in function: both exist to get a consumer to buy something.
Two courts, thirteen years apart, asking what the thing does rather than how it’s wired.
So what’s the offline version of a digital asset transaction?
This is where my July hedge was too pessimistic.
The August 21 complaint answers the question directly, with concrete comparators. As I read it, the argument runs like this. Illinois taxes exchanging one digital asset for another — but not walking into a currency exchange and trading dollars for euros. Illinois taxes storing a digital asset with a custodian — but not keeping gold in a safe deposit box. Illinois taxes a broker holding your digital assets — but not a brokerage holding your stock.
Flagging this clearly: I’m working from a summary of that filing, not the filing itself, and I’ll be reading the complaint before I repeat these in any template or legislator letter. If the comparators as pled differ from what I’ve described, I’ll correct this post. But the shape of the argument is the thing to see: the answer to “there’s no offline version” is that exchanging, storing, and transferring value are not new activities. Illinois has never taxed a single one of them by any other method.
There’s something almost too neat about the self-transfer case. Moving your own digital assets between your own two accounts is taxed. Moving your own gold between your own two safe deposit boxes isn’t. Moving cash from your own checking to your own savings isn’t. If there is a functional offline twin anywhere in this statute, that’s it.
Where the “no offline version” argument actually comes from
I want to give this its due, because the argument I hedged with in July isn’t something I made up, and it isn’t dead.
In Performance Marketing, the Multistate Tax Commission filed a friend-of-the-court brief for the state arguing that click-through marketing has no direct analog outside the internet, nothing offline has the same immediacy and directness. Justice Karmeier’s dissent picked it up and drew the conclusion: if an internet arrangement has no true offline counterpart, it’s hard to see how taxing it can be discriminatory, because the federal law only requires that internet transactions not be treated worse than non-internet ones. It doesn’t create a tax exemption for the internet.
The state’s counsel made the same point at argument. That’s a real argument, made by serious people, and it got one vote of seven.
The majority didn’t adopt it. But it also didn’t have to squarely reject it, because it found a comparator. That distinction matters: Performance Marketing is a case about what happens when there is an offline twin. It’s not a holding that a novel electronic activity can never be taxed.
The honest case against everything I just wrote
Here’s the part I’d want to read if I were skeptical of me.
Courts have read ITFA narrowly. The Congressional Research Service’s own summary of ITFA jurisprudence says exactly that: state court lawsuits challenging taxes under ITFA indicate courts have interpreted its preemption provisions narrowly. That’s not an advocacy group’s characterization. That’s Congress’s research arm.
And Illinois has a case going the other way. In 2019, in Labell v. City of Chicago, an Illinois appellate court considered whether Chicago’s amusement tax (extended to cover streaming services) discriminated against electronic commerce. The taxpayers relied on Performance Marketing. The court held it wasn’t dispositive and the tax survived, because the services being compared weren’t identical: streaming is used privately at home on your own device, while jukeboxes and pinball machines are used publicly, outside the home, on equipment a business owns and maintains.
Read that carefully, because it’s the state’s best card in this fight. Labell is an Illinois court, decided after Performance Marketing, saying that “roughly analogous” isn’t enough, the comparison has to be tight. A Washington court did something similar in 2020, distinguishing Performance Marketing and upholding a higher tax rate on digital automated services.
So the state’s road is visible: concede Performance Marketing exists, then argue this is Labell. Custody of a bearer instrument on a distributed ledger, they’ll say, is not identical to a safe deposit box; different risk, different mechanics, different regulatory treatment. And they’ll add the presumption against preemption, which is strongest exactly where state taxation is concerned. Federal law doesn’t displace a state tax unless Congress made its intent unmistakably clear.
What I’m not claiming. I’m not telling you this tax is preempted. I’m not telling you the plaintiffs win this count. The ITFA question in these two cases is unresolved and it will turn on how tightly a judge draws the comparison, which is a genuinely contested call, not a formality. Reasonable lawyers disagree about it right now.
What I’m claiming is narrower and, I think, harder to argue with: this is not a fringe theory. It is the theory that beat Illinois in Illinois’s highest court, on a statute the Department of Revenue was defending, within living memory of everyone involved.
One thing that’s changed since 2013
Justice Karmeier’s dissent had a structural complaint that was correct at the time. ITFA, he pointed out, was a moratorium, not a ban. It was set to expire in November 2014. Preemption doesn’t erase a state law, it suspends it, so once the moratorium lapsed, Illinois’s click-through law would spring back to life without the legislature lifting a finger.
That objection is gone. Congress made ITFA permanent on February 24, 2016, as part of the Trade Facilitation and Trade Enforcement Act of 2015. There’s no expiration date to wait out anymore.
The fix… and the version of it we should not ask for
Now the uncomfortable part, and I’d rather raise it myself than have someone raise it at me.
There are two ways to cure an ITFA discrimination problem. You can stop taxing the electronic thing. Or you can start taxing the offline thing too.
Illinois has done the second one before. After losing Performance Marketing, the General Assembly came back in 2014 and rewrote the click-through nexus law (Public Act 98-1089, effective January 1, 2015) to cover referrals through promotional codes distributed by hand, by mail, and over broadcast media, not just internet links. The discrimination went away because the offline version got swept in.
Nobody reading this wants the Illinois version of that outcome, which would be a transaction tax on currency exchanges and safe deposit boxes. So I want to be precise about what a fix looks like here, and honest that this particular post doesn’t carry a tidy one. An ITFA defect is structural. It isn’t a drafting error you patch with a clause.
But the narrowest change that speaks directly to it is the one this newsletter has been circling for a month: carve self-transfers out of the definition of a taxable transfer. A movement of assets between two accounts belonging to the same customer has the clearest untaxed offline twin in the entire statute, and removing it doesn’t require anyone to concede the tax was a mistake, doesn’t touch the rate, and doesn’t touch the revenue estimate in any meaningful way. It’s the kind of amendment a legislator who voted for the budget can carry without eating a word of it.
That won’t resolve the ITFA question. It will make the statute smaller and more defensible, and it will stop taxing an event where nothing happened.
Where this stands
Status Runs out The courts Two suits in Sangamon County (July 21, August 21); both plead an ITFA count No public schedule yet The rules Still nothing published in the Illinois Register Ordinary rulemaking path closes ~October 3 Maryland Digital ad tax struck down Aug. 14; appeal signaled 30-day window closes ~Sept. 13 The legislature Six session days Nov. 17–19 and Dec. 1–3 The deadline Registration required; monthly returns begin January 1, 2027 — 116 days
That rulemaking row hasn’t moved in three weeks. It’s now about four weeks from closing.
The ask
One thing this week. Write your own State Senator and Representative — Find My Legislator — and make this specific argument, because it’s the one a legislator can actually use.
I’m a constituent in [town]. I’m writing about the Digital Asset Tax Act, which takes effect January 1, 2027.
In 2013, the Illinois Supreme Court struck down this state’s click-through nexus law in Performance Marketing Ass’n v. Hamer because it taxed an activity conducted electronically while leaving the same activity conducted offline untaxed. Both lawsuits now pending against the Digital Asset Tax Act raise the same federal statute. Illinois taxes exchanging and storing digital assets, but taxes no comparable non-digital transaction — not currency exchange, not safe deposit boxes, not stock custody.
I’d ask you to look at one narrow correction: exclude transfers between accounts belonging to the same customer from the definition of a taxable transfer. That change costs the state almost nothing and removes the clearest example of the state taxing an electronic event with an untaxed offline equivalent.
[One sentence, in your own words, about why this matters to you.]
That last line still isn’t decoration. Identical letters get counted once.
As always, join the cause at illinoisbitcoincouncil.org/membership.
A note on naming, which I’ve made before and will keep making: early reporting on these suits referred generally to “internet freedom laws.” The Internet Tax Freedom Act is the specific federal statute I believe is meant, and naming it is my read, not a quotation from the filings.
Corrections, as always, get published rather than buried. If you have the August 21 complaint in front of you and my description of its comparators is off, send it to me and I’ll fix this post the same day.
The Illinois Bitcoin Council is a nonpartisan 501(c)(6) nonprofit. This is educational commentary, not legal or tax advice.