“Keep DEXs and interfaces out of the broker definition, protect self-custody, and don’t tax when we move our own assets,” DEF said in announcing the submission.
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Where the Draft Draws the Line
The department’s draft rules already distinguish between different DeFi fees. Swap fees directed solely to liquidity providers and network fees paid to miners and validators do not count as “valuable consideration.” Protocol fees charged for a platform’s operation and maintenance do, potentially bringing those transactions within the tax.
The letter proposes replacing that distinction with an exclusion for transactions users conduct through DeFi protocols from wallets they control, regardless of fees. It also seeks protection from broker status for people developing, maintaining or governing protocols, supplying liquidity, or providing websites, applications and wallets through which users access them.
The groups ask Illinois to define protocol fees separately from interface fees—the charges for using a website, application or wallet—and specify that neither constitutes valuable consideration or, on its own, makes someone a broker. They argue that the tax statute incorporates a federal broker definition that does not cover the software described in their letter.
Wallet withdrawals are another point of contention. One draft example explicitly taxes a customer who pays an exchange fee to move assets from a centralized exchange into a self-custody wallet. Another taxes a broker-assisted transfer between two wallets belonging to the same customer. Direct transfers without a broker are excluded.
The commenters propose deleting bridging from the list of exchanges and expressly excluding broker transfers to a customer’s own wallet, as well as movements between blockchains. They also warn that treating separate blockchain entries as separate occurrences could tax one bridge movement twice.
Separately, the groups request replacing “private keys” with “public keys” in the draft’s broker recordkeeping requirement. They argue that retaining the secret credentials used to authorize asset transfers would create a theft risk; public wallet addresses and transaction identifiers can instead document asset movements.
Effective Date Remains a Separate Question
The draft specifies a Jan. 1, 2027 start for the tax. The letter asks that the rules wait until an Illinois court has had an opportunity to rule on the tax’s legality, and in no event take effect before July 1, 2027. That July date is a requested minimum delay, not an effective date established by this filing.
The department’s comment window closes at the end of business Oct. 30. Its notice announcing the consultation describes the rules as drafts that have not been filed with the secretary of state or submitted to the Joint Committee on Administrative Rules.
