INSIDE SALT

Utah’s targeted advertising tax heads to court

by Stephen P. Kranz, Mark Nebergall and Jonathan C. Hague | Jul 30, 2026 | Allocation/Apportionment, Constitutional Issues, Illinois, Maryland, Nationwide Importance, Utah, Washington

On July 28, 2026, McDermott Will & Schulte, together with Holland & Hart, filed a verified complaint on behalf of the Utah Taxpayers Association challenging Utah’s new targeted advertising tax. The lawsuit asks the Third Judicial District Court in Salt Lake County to declare the tax unlawful and unconstitutional and permanently enjoin the Utah State Tax Commission from enforcing it. Because the action challenges the constitutionality of a Utah statute, state law requires the case to be heard by a three-judge district court panel.

Enacted earlier this year as Senate Bill 287 and codified at Utah Code Ann. § 59-35-201, Utah’s tax borrows from Maryland’s digital advertising gross receipts tax but applies specifically to receipts from “targeted advertising.” The law imposes a 4.7% tax on Utah gross receipts from targeted advertising earned by an entity that derives at least:

$1 million in annual gross receipts from targeted advertising in Utah
$100 million in annual gross receipts from targeted advertising worldwide
50% of its total worldwide gross receipts from targeted advertising.

The tax applies to taxable periods beginning on or after January 1, 2027.

Although the statute describes targeted advertising as the delivery of an advertisement “by any means,” the law’s cumulative definitions limit the tax to advertising delivered over the internet. Similar advertising delivered through newspapers, radio, television, billboards, and other non-internet channels is not subject to the tax.

The complaint asserts four claims:

The tax is preempted by the federal Internet Tax Freedom Act (ITFA), which prohibits states from imposing discriminatory taxes on e-commerce. Utah’s tax violates ITFA because it applies to advertising delivered over the internet while leaving comparable advertising delivered through other channels untaxed.
The tax is independently barred by ITFA’s prohibition against taxes on “Internet access.” ITFA’s definition of internet access includes certain independently provided content, such as “video clips.” Because Utah’s definition of an advertisement reaches video advertisements delivered over the internet, the tax reaches receipts from internet access itself.
The tax discriminates against interstate commerce in violation of the Commerce Clause of the US Constitution. No Utah-domiciled business satisfies the law’s worldwide gross-receipts thresholds. Utah businesses earning targeted advertising receipts below those thresholds therefore remain untaxed while larger out-of-state businesses engaging in the same activity are subject to the tax.
The worldwide gross-receipts thresholds violate due process. Whether an entity owes the Utah tax may depend on receipts and business activities occurring entirely outside Utah, even when those activities have no connection to the state. Utah may not use those extraterritorial activities to determine whether an entity’s Utah receipts are taxable.

Utah is part of a broader pattern. Maryland’s digital advertising gross receipts tax prompted immediate litigation, and Washington’s expansion of its sales tax to advertising services has already been challenged under ITFA. Illinois recently enacted its own targeted advertising tax and should expect to face a similar challenge.

Any state that follows Maryland’s lead by taxing internet advertising while excluding comparable advertising delivered through other channels [...]

Continue Reading

Incoming from Delaware: Unclaimed Property VDA Program invitation notices have been sent out

by Stephen P. Kranz, Eric D. Carstens and Vanessa S. Torres | Apr 13, 2026 | Audits, Delaware, Interest and Penalties, Unclaimed Property

The Delaware Office of the Secretary of State (SOS) confirmed that on April 10, 2026, invitation notices were sent to businesses (holders) identified as potentially out of compliance with Delaware’s unclaimed property law. The notices encourage holders to enroll in the SOS Unclaimed Property Voluntary Disclosure Agreement (VDA) Program within 90 days of receipt of the notice and cautions that failure to do so will result in the holder being referred to a peer state agency (the Department of Finance) for examination – the day-to-day of which is conducted by one of Delaware’s third-party unclaimed property audit firms. As a result, these seemingly routine initial regulatory compliance notices should not be ignored, and it is critical that companies be on the lookout for these notices and respond in a timely manner.

VDA Program invitations are typically sent to the holder’s chief financial officer (CFO) via certified mail. Given the history of these notices being lost, delayed in the mailroom, or forwarded to the wrong department, it may be prudent for those responsible for unclaimed property compliance to check with their CFO in the coming weeks on whether a letter from the SOS was received since the 90-day clock is imminent. Recipients of these invitations range from middle-market companies to Fortune 100 companies, both privately and publicly held, across a wide range of industries, including oil and gas, retail, banking, utilities, technology, media, healthcare, manufacturing, pharmaceutical, and consumer products. However, there has recently been a noticeable increase in invitations sent to companies that maintain a long filing history but may have been involved in recent merger or acquisition activity. Additionally, companies that have formed within the last 10 years but have experienced rapid growth over the last few years are at higher risk of receiving invitations. This group includes startups that have recently gone public; cloud and artificial intelligence companies; and companies with online and transient customer bases, such as payment processers and online marketplaces. Delaware incorporated entities with a large presence of foreign owned (or unknown) property on their books and records are always at risk of an unclaimed property regulatory compliance review by Delaware.

The lookback period for both the unclaimed property audits and the VDA Program is 10 report years, plus the five-year dormancy period for most property types, equating to a 15-year lookback period. Often, complete and researchable books and records are not available for the full lookback period and the VDA Program regulations require estimation for the older periods.

Enrolling in the VDA Program offers several benefits, including, but not limited to, a waiver of Delaware’s statutory penalties, a significant reduction in interest paid on any findings, control over the process, a 90-day aging criteria for voided disbursement checks that limits the workload (compared to the traditional 30-day period), and not being referred to the Department of Finance – which has the potential to turn into a multistate audit.

Holders that receive an invitation to the VDA Program from the SOS in the coming weeks are [...]

Continue Reading

A second chance to get it right: Washington’s ESSB 5814 penalty relief program offers critical compliance window

by Mary Kay McCalla Martire and Elle Kaiser | Mar 20, 2026 | Interest and Penalties, Nationwide Importance, Sales Tax, Washington

If your business has been struggling to keep pace with Washington State’s sweeping expansion of retail sales tax under Engrossed Substitute Senate Bill (ESSB) 5814, you are not alone. And, more importantly, you may not be too late. The Washington Department of Revenue (DOR) announced a temporary penalty relief program specifically designed to help businesses that have not yet complied with their new tax obligations. For affected taxpayers, this program represents an opportunity to resolve outstanding liabilities without penalty exposure.

Background: ESSB 5814 and the expansion of taxable services

ESSB 5814 represents a significant expansion of Washington’s retail sales tax regime. The legislation expanded the statutory definition of “retail sale” to encompass several service transactions that were subject only to Washington’s business and occupation (B&O) tax under the “service and other” classification.

The categories of services newly subject to retail sales tax include:

Advertising services
Information technology consulting and technical support services
Custom software development and customization of prewritten software
Custom website development services
Investigation and security services, including monitoring and armored car services
Temporary staffing services
Certain live presentations and event-related services

As a result of the legislative change, providers of these services must now:

Collect and remit retail sales tax on taxable transactions.
Report the receipts under the retailing B&O tax classification rather than the service and other classification that historically applied. This change generally will help compliant taxpayers as the retailing B&O tax rate (0.471%) is lower than the services and other B&O tax rate (between 1.5% and 1.75%).

The law took effect October 1, 2025, but transitional rules applied to certain preexisting contracts through March 31, 2026. Given the quick implementation of ESSB 5814, the breadth of the change, and the number of industries affected, many taxpayers faced uncertainty regarding compliance. To address these transition challenges, the DOR has announced a temporary penalty relief program for taxpayers that failed to collect or remit the newly applicable taxes during the early stages of implementation. The program is also intended to encourage voluntary compliance with the new law.

Overview of the penalty relief program

To be eligible for relief, businesses must meet the following criteria:

Covered liabilities: The program covers uncollected retail sales tax and unpaid use tax for the new categories of taxable services created by ESSB 5814.
Covered reporting periods: Eligible reporting periods run from October 1, 2025, through December 31, 2026. For businesses with preexisting contracts that qualified for temporary sales tax relief, penalty relief begins when the contract no longer qualifies for such relief or on April 1, 2026 (whichever occurs first). Relief for businesses with preexisting contracts also ends on December 31, 2026.
Application process: Applications must be submitted via the DOR’s Voluntary Disclosure Application system. Once the DOR determines that a taxpayer qualifies, it will issue a Penalty Relief Agreement that the taxpayer must sign and return within 30 days. After execution, the DOR will work with the taxpayer to determine the appropriate tax liability and issue a formal assessment. (Note that Washington law requires [...]

Continue Reading

Congress passes resolution blocking District of Columbia decoupling legislation

by Stephen P. Kranz, Michael J. Hilkin and Eric D. Carstens | Feb 13, 2026 | District of Columbia, Federal Tax, Income Tax, Nationwide Importance

US Congress has passed H.J.Res.142, a joint resolution to nullify legislation enacted by the District of Columbia City Council to decouple from certain One Big Beautiful Bill Act (OBBBA) provisions, including:

Modifications of the limit on interest that businesses may expense under Internal Revenue Code (IRC) Section 163(j).
The allowance of first-year expensing for new investments in qualified production property as provided for in new IRC Section 168(n).
Modifications to the treatment of research and experimentation expenses under IRC Section 174 and new Section 174A.

The US Constitution provides Congress with plenary legislative authority over the District of Columbia as the federal capital, but Congress has granted limited home rule authority while “reserving the right, at any time, to exercise its constitutional authority as legislature for the district.” Generally, for noncriminal legislation, Congress has 30 business days to pass a resolution nullifying a bill passed by the District of Columbia local government. In practice, Congress has rarely exercised such authority. In fact, it is so rare that Eleanor Holmes Norton, the spokesperson for District Delegate to Congress, has claimed that there is a dispute as to whether the 30-day review period has already expired.

Presuming the joint resolution is valid, District of Columbia officials have warned it will cost approximately $650 million over five years and could force the suspension of income tax filing deadlines to this fall because of necessary changes to tax forms, the District of Columbia’s tax processing system, and third-party tax processing software. Nevertheless, such action is consistent with the Trump administration’s public complaints about states failing to conform to the OBBBA.

Diann Smith honored with prestigious NYU Paul H. Frankel achievement award

by Stephen P. Kranz and Catherine A. Battin | Dec 10, 2025 | Nationwide Importance

We are thrilled to share that Diann Smith has been selected to receive the NYU School of Professional Studies Paul H. Frankel Award for Outstanding Achievement in State and Local Taxation. Established in 2002 to honor Paul H. Frankel – widely regarded as “the godfather of state and local taxation” – this award is presented annually to individuals who have made exceptional and lasting contributions to the state and local tax (SALT) profession.

Diann received the award on December 8, 2025, during the NYU SPS Institute on State and Local Taxation Conference. She is the second McDermott Will & Schulte lawyer to receive the award, following retired New York partner, Peter Faber (2014). With the award, Diann joins a short list of 23 distinguished individuals who have made a permanent mark on the SALT landscape.

Diann’s career accomplishments in SALT and unclaimed property law are widely recognized as having solved some of the most difficult client-facing problems and for advancing the law on the tax policy front. She has spent her career defending against unconstitutional action by governments and advocating for fair and reliable administration of the laws. She is known for her emphatic and informed defense of taxpayers and her appetite to educate and mentor tax practitioners. She previously served as general counsel for the Council On State Taxation, where she played a pivotal role in addressing nearly every major SALT issue impacting multistate businesses. She was also an adjunct professor at Georgetown University Law Center for the LLM in Taxation program and has contributed extensively to the profession through regular publications and by speaking at schools and conferences.

Diann’s role at McDermott Will & Schulte has been called “our big brain” by Partner Stephen Kranz. He describes her as the firm’s secret artificial intelligence model: “You can feed Diann a question about anything SALT and watch as her mind churns out an incredible analysis reflecting the nation’s SALT history and state of the law.” She is based in the firm’s Washington, DC, office but spent nearly a decade in New York City. She loves SALT almost as much as she loves her cats.

Please join us in congratulating Diann on this outstanding achievement!