Utility tokens issued in an initial coin offering (ICO) are not subject to Illinois sales tax as they are intangible property. The Department of Revenue issued a general information letter stating that sales of tokens, also known as smart contracts, are:
- sales of intangible personal property; and
- not transactions subject to sales tax.
ICO with Utility Tokens in Illinois
In its request for a ruling, an Illinois limited liability company explained that it intended to start a business mining cryptocurrency. The LLC would fund its startup, in part, through public sales of utility tokens via blockchain technology.
Each utility token would represent a share of the hardware used by the LLC to mine cryptocurrency. Only a limited number of tokens would be sold. No additional tokens would be created. A buyer of tokens would receive profits based on the share of mining hardware that their tokens represented.
The LLC asked the department whether sales and use tax would be due on the sale of utility tokens.
Department Points to Sales Tax Regulation
The department did not provide a ruling. It directed the LLC to a sales tax regulation that defines transactions that are not subject to Illinois sales tax. Importantly, general information letters are not statements of department policy.
General Information Letter ST 18-0025-GIL, Illinois Department of Revenue, September 13, 2018, released January 17, 2019, ¶403-375