On April 27, 2025, the Washington Legislature delivered to Governor Bob Ferguson’s desk Senate Bill (SB) 5814, a sweeping tax bill that, among other changes, would expand the state’s retail sales and use tax to sales of digital advertising services and a range of high-tech and IT services. The bill now awaits the governor’s signature, with a decision due by May 20, 2025.
If enacted, the changes would take effect October 1, 2025, marking a significant expansion of Washington’s tax base into areas that have long been exempt, particularly intermediate business services such as digital marketing, data processing, and custom software support.
WHAT THE BILL DOES
SB 5814 amends RCW 82.04.050 by redefining “sale at retail” to include a broad range of services previously excluded from the sales tax. Specifically, it adds “advertising services,” defined as:
All digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements including, but not limited to: layout, art direction, graphic design, mechanical preparation, production supervision, placement, referrals, acquisition of advertising space, and rendering advice…
The definition also expressly includes:
- Online referrals
- Search engine marketing
- Lead generation optimization
- Web campaign planning
- The acquisition of advertising space in the internet media
- Website traffic analysis for determining the effectiveness of an advertising campaign.
However, the bill expressly excludes advertising services rendered in connection with newspapers (as defined in RCW 82.04.214); printing or publishing (RCW 82.04.280); radio and television broadcasting; and out-of-home advertising such as billboards, transit displays, and signage at events.
With that list of exclusions, it’s hard to imagine what advertising services other than internet advertising services are left to tax. This focus on internet advertising creates a prima facie discriminatory tax on electronic commerce barred by the federal Internet Tax Freedom Act (ITFA).
ITFA AND THE CERTAINTY OF A LEGAL CHALLENGE
ITFA prohibits states from imposing “discriminatory taxes on electronic commerce.” A tax is discriminatory if it applies to digital services but not similar offline equivalents.
While SB 5814 expressly includes both digital and non-digital advertising services, the carve-outs for traditional formats such as print, TV, and radio effectively leave out non-digital advertising. As the bill itself states, services connected to newspapers, publishing, and broadcast media are not taxable. This distinction creates a classic ITFA problem:
- A digital banner ad campaign will be taxed.
- A newspaper ad or radio spot promoting the same product will not.
This kind of structural bias has been challenged before. Maryland’s Digital Advertising Gross Revenues Tax (the first of its kind in the United States) was enacted in 2021 and quickly faced multiple lawsuits on ITFA and other grounds. In 2022, a Maryland trial court struck down the law as unconstitutional, citing ITFA violations and federal preemption (although the decision was later reversed on procedural grounds). That litigation continues while the stack of taxpayer refund claims on the Maryland Comptroller’s desk grows taller.
Washington faces a similar outcome. SB 5814’s facial discrimination against digital advertising is precisely the kind of unequal treatment ITFA was designed to prohibit.
HIGH-TECH AND IT SERVICES ARE NOW TAXABLE
High technology is a bread-and-butter industry for Washington. Remarkably, SB 5814 also extends the sales tax base to a host of high-tech services that are the core of its economy. Newly taxable categories include:
- Custom website development
- IT technical support (e.g., help desk and network operations)
- In-person or live virtual IT training
- Data processing and data entry.
These services are often purchased by businesses (not end consumers), which raises concerns about tax pyramiding (i.e., the compounding of sales tax on intermediate services before the final product reaches consumers). This hidden cost is typically passed on to customers, increasing prices and embedding inflationary pressure in the state’s economy.
Local advertisers and businesses that rely on digital marketing and high-tech services will see these costs rise, which will lead to higher prices for consumers and make it more difficult to operate competitively in Washington.
OUTLOOK
If enacted, SB 5814 will face legal challenges, particularly under ITFA, in due course. The bill’s structure – taxing digital ad services while exempting traditional media – invites litigation that will tie up the state’s Revenue Department in court for years and expose Washington to refund liability with interest and make future tax revenue illusory.
At the same time, the bill’s economic impact is highly uncertain. While projected to raise new revenue, it may instead undermine Washington’s own digital economy, pushing business out of state, inflating the cost of advertising and IT services, and burdening consumers with hidden costs.
The state is gambling with legal exposure and economic disruption to chase speculative revenue. Like Maryland, Washington may find that taxing digital advertising is far easier to legislate than to defend or enforce. If SB 5814 becomes law, the real verdict may come not from Olympia, but from the courts.
