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Digital Advertising Taxes: Gross Receipts, Sales Tax, or Fees?

Sarah Weintraub and Jennifer Barajas
Updated on September 17, 2026
Cropped shot of an unrecognizable businesswoman using a digital tablet while working late

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.

See related: Recent State Tax Developments: Maryland Digital Ad Tax, California Sourcing Cases, and Massachusetts Apportionment Decisions

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.

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About the Author(s)

Sarah Weintraub Photo
Sarah Weintraub
Manager
Sarah Weintraub is a Sales and Use Tax Consultant at Eide Bailly, with extensive experience navigating complex indirect tax compliance across various industries. Her expertise covers sales and use tax matters such as audit defense, industry specific exemption application, and voluntary disclosure agreements, along with strategic support for capital expenditure planning. Additionally, Sarah is well-versed in business personal property tax planning and audit defense. Known for simplifying complex tax concepts and delivering tailored, actionable guidance, Sarah’s consultative approach and clear communication help businesses efficiently manage their tax obligations.
Photo of Jennifer Barajas
Jennifer Barajas
Director

Jennifer Barajas is an experienced state and local tax expert with over 15 years of experience advising clients on multistate income tax issues. She assists clients with state tax planning, transaction planning, voluntary disclosure agreements, nexus studies, passthrough entity taxes, apportionment calculations, receipts sourcing, state controversies, amended returns and state audit defense.

Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.