Key Takeaways
-
States are taking different approaches to taxing digital advertising, creating a patchwork of rules.
-
Constitutional and ITFA challenges will continue to shape these taxes.
-
Businesses should monitor developments for compliance, refund, and planning opportunities.
If you work in tax, you’ve seen a flood of coverage about digital advertising taxes. Are they gross receipts taxes, excise taxes, sales taxes, or newly created charges called “fees”? Remember the retail delivery fee trend? Depending on the state, the answer may be all of the above. That inconsistency is exactly what makes this trend so difficult to plan around.
On our watch list are states getting creative with their approaches as they try to navigate the Internet Tax Freedom Act (ITFA), the Commerce Clause, and other constitutional limits. The issues have led to litigation in Maryland, Utah, Washington, and Illinois. Most recently, the Maryland Tax Court struck down Maryland’s digital advertising tax in three separate cases.
Digital Advertising Tax Developments by State
Maryland: Enacted (struck down by the Maryland Tax Court, on appeal)
Maryland imposes a 2.5% to 10% gross receipts tax on digital advertising revenue. On August 14, 2026, The Maryland Tax Court issued three decisions involving Apple, Google, and Peacock TV and ordered refunds of the contested tax, with interest.
The court concluded that taxing digital advertising while leaving comparable traditional advertising untaxed violated ITFA. It also found that Maryland’s graduated rates are based on a taxpayer’s global annual gross revenue. Because that caused the taxpayer’s liability to increase based on activity outside the state, the court held it violated the dormant Commerce Clause and the Due Process Clause. In Peacock, the court also held that the exemptions for broadcast and new entities violates the First Amendment.
Maryland has appealed the Maryland Tax Court's decisions and is seeking judicial review in circuit court. As a result, the validity of the tax remains unsettled and further litigation is expected. Taxpayers that paid the tax may want to consider filing protective refund claims while the filing window remains open.
Utah: Enacted
Effective January 1, 2027, Utah imposes a 4.7% tax on targeted advertising under Senate Bill 287. The tax applies only to entities meeting specified Utah and worldwide revenue thresholds.
Although the law covers targeted advertising delivered “by any means,” its definition appears to apply to internet-based advertising while excluding traditional advertising channels. The Utah Taxpayers Association filed a lawsuit in July 2026 challenging the tax under ITFA and the Commerce Clause.
Washington: Enacted
Effective October 1, 2025, Washington expanded its sales tax base to include advertising services and classified those services as retailing activities for business and occupation (B&O) tax purposes.
The law excludes certain newspaper, radio, television, and out-of-home advertising. That differing treatment is central to a pending Comcast ITFA challenge.
Illinois: Enacted
Illinois enacted two different approaches to taxing the digital economy. One imposes a monthly charge on social media platforms based on the number of Illinois users. The other imposes a 10% tax on gross receipts from targeted advertising.
Both measures are scheduled to take effect in January 2027. NetChoice filed separate lawsuits in September 2026 challenging the measures under ITFA and other constitutional grounds.
Other states
Several other states have recently considered taxing digital advertising, but they have not yet passed a law. Pennsylvania’s House Bill 1678 would extend Pennsylvania’s 5% gross receipts tax to digital advertising. The bill passed the House and remains pending in the Senate. Minnesota and Tennessee considered advertising-related taxes during their 2026 legislative sessions, but the proposals did not pass.
Why the Tax Type Matters
The tax type determines who reports and remits, how the tax is calculated, and whether the tax creates sales and use tax obligations.
Gross receipts taxes and fee-based models generally place the reporting obligation on the platform or service provider. If you buy advertising, you may still bear some of the cost through higher prices or separately stated charges.
Sales tax models can directly affect invoicing, sourcing, tax engine configuration, exemption documentation, and use tax accruals. Washington is the clearest current example.
What We Expect Next
States are likely to continue exploring ways to tax advertising and the broader digital economy. If you buy or sell advertising across state lines, monitor these developments and consider how new taxes could affect taxability, sourcing, billing systems and refund opportunities.
Have questions about how digital advertising taxes affect your business? Our State and Local Tax team can help you evaluate the potential impact and build a proactive plan.
