a16z, Uniswap and DeFi Education Fund Challenge Illinois Crypto Tax Rules

Andreessen Horowitz (a16z), Uniswap Labs and the DeFi Education Fund filed a joint petition on October 30 opposing the Illinois Department of Revenue's draft rules under the Digital Asset Tax Act. The filing asks the state to remove decentralized exchanges and their interfaces from the definition of digital asset brokers, to drop private key retention mandates, and to stop taxing transfers between wallets owned by the same user. The DeFi Education Fund summarized the position on X: "keep DEXs and interfaces out of the broker definition, protect self-custody, and don't tax when we move our own assets."

The submission argues that the current framework imposes obligations that smart contract-based protocols cannot technically fulfill. Decentralized infrastructure, the petitioners contend, has no capacity to act as a tax-collecting agent or a traditional financial intermediary.

What does the filing specifically request?

The joint document raises objections across four operational areas: broker classification, network fee treatment, cryptographic key storage and cross-chain transfers. On classification, the filing notes that Illinois' draft sought to designate user interfaces and protocols as digital asset brokers solely because they charge protocol fees. The petitioners counter that a decentralized exchange operates without banking intermediaries and that users retain direct control over their funds at all times.

They also ask the Department of Revenue to confirm that anyone trading on a DEX for their own account falls under the dealer-trader principal exclusion. Protocol fees routed to burn mechanisms or executed automatically by code, the filing states, do not constitute direct commercial compensation for developers. That distinction matters; if automatic fee flows count as developer income, teams with no ability to intercept them could still face broker-level reporting duties.

Why is the private key requirement contested?

The most pointed objection targets any requirement to collect and retain records of users' private keys. The organizations argue that such a mandate compromises the integrity of the ecosystem and contradicts existing asset protection standards. Holding private keys, they note, raises the risk of security breaches and theft of funds.

Their proposed alternative is narrow: regulators should rely only on public wallet addresses and on-chain transaction identifiers. Whether the Department of Revenue accepts that substitution remains an open question, and the filing itself acknowledges no response timeline from the state.

How would the 0.2% levy work?

Illinois law imposes a 0.2% levy on the gross value of digital asset transactions executed through registered intermediaries. Unlike federal capital gains taxation, which applies to realized gains, the state calculates its rate on gross transferred volume. Industry estimates cited in the filing indicate that a representative $10,000 transaction would generate a $20 tax regardless of the platform's operating margin or fee income.

The filing also rejects taxation of transfers between accounts controlled by the same person. Withdrawing assets from a custodial platform to a self-custody wallet, the petitioners argue, is not a taxable sale or disposition; the document compares it to physically moving possessions between personal storage spaces. On cross-chain bridging, the groups warn that taxing these transfers would produce double taxation on the same asset while legal ownership remains unchanged.

What happens next?

The October 30 comments proceed on a separate procedural track from the litigation brought by the Chamber of Digital Commerce and the Illinois Blockchain Association. Those lawsuits seek judicial invalidation of the 0.2% tax on state and federal constitutional grounds, whereas this filing aims to amend the technical regulations administratively before implementation.

The compliance schedule remains stayed under an injunction until July 1, 2027, when the extension agreed between the State of Illinois and the industry plaintiffs expires. That date effectively sets the deadline for both the administrative revision and any judicial resolution before the tax rules take effect.

The takeaway is plain: industry groups are trying to fix the rules on paper before courts decide whether the underlying tax survives at all.