On May 20, 2025, Washington Governor Bob Ferguson signed into law Senate Bill (SB) 5814, a sweeping tax bill that expands Washington’s retail sales and use tax to digital advertising services and a range of high-tech and IT services. The new law takes effect for sales occurring on and after October 1, 2025.
As we noted previously, this legislation marks a significant shift in Washington’s tax policy, extending sales tax to categories of traditionally exempt business-to-business services. With enactment, legal challenges – particularly under the federal Internet Tax Freedom Act (ITFA) – are ripe and appear inevitable.
WHAT THE LAW DOES
SB 5814 amends RCW 82.04.050 by redefining “sale at retail” to include “advertising services,” broadly covering both digital and nondigital forms of ad creation, planning, and execution. The law specifically includes:
- Online referrals
- Search engine marketing
- Lead generation optimization
- Web campaign planning
- Digital ad placement
- Website traffic analysis
However, the law expressly excludes services rendered in connection with:
- Newspapers (RCW 82.04.214)
- Printing or publishing (RCW 82.04.280)
- Radio and television broadcasting
- Out-of-home advertising (g., billboards, transit signage, event displays)
With these carve-outs, it is difficult to see how anything other than internet advertising remains subject to tax. The structure of the new tax facially discriminates against e-commerce and is barred by ITFA.
ITFA AND THE CERTAINTY OF A LEGAL CHALLENGE
ITFA prohibits states from imposing taxes that discriminate against digital services when comparable offline equivalents are exempt. While SB 5814 purports to cover both digital and nondigital advertising, the exclusions for nondigital forms of advertising cause it to target the digital side of the industry. For example, a digital banner ad will be taxed, whereas a banner towed by an airplane promoting the same product will not.
This distinction mirrors the structure of Maryland’s Digital Advertising Gross Revenues Tax, which has been tied up in litigation since its enactment in 2021. A Maryland trial court found that law facially violated ITFA and federal preemption principles. That litigation continues, and Washington now finds itself on a similar path.
HIGH-TECH AND IT SERVICES ARE NOW TAXABLE
In addition to digital advertising, SB 5814 extends the retail sales tax to high-tech services, including:
- Custom website development
- IT technical support and network operations
- Data processing and data entry
- In-person or live-virtual technical training
Like advertising, these intermediate services typically are purchased by businesses in support of operations rather than for end consumption. Taxing their sale introduces tax pyramiding and adds costs that will ultimately be passed on to consumers. For Washington’s tech-driven economy, this change will inflate prices and reduce competitiveness.
Local advertisers and businesses that rely on digital marketing and high-tech services will see these costs rise and lead to higher prices for consumers.
OUTLOOK
While SB 5814 is now law, its enforceability remains far from certain. Taxing digital advertising services while expressly excluding offline media places the new law on a collision course with ITFA. A legal challenge is all but guaranteed.
At the same time, the law’s fiscal impact is speculative. Revenue projections assume compliance across a complex landscape of service transactions, but practical realities, including sourcing ambiguities, administrative burdens, and behavioral changes, may undermine the base.
Washington, like Maryland, will find that taxing digital advertising is easier to legislate than to defend. The real test will come not in Olympia, but in the courts.
For those interested in a deeper discussion of potential legal challenges or compliance considerations under the new law, please reach out to the authors.
