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Washington’s advertising services tax: Sourcing rules clear as mud

by Stephen P. Kranz, Mark Nebergall and Jonathan C. Hague | Aug 12, 2025 | Allocation/Apportionment, Constitutional Issues, Nationwide Importance, Sales Tax, Tax Base, Washington

Washington’s sales tax on advertising services takes effect October 1, 2025, and comes in two forms: a tax on digital automated services and a tax on retail sales of advertising services. Both impositions apply to digital advertising services delivered using the internet. This makes Washington an outlier as currently only two other states impose a tax on sales of advertising services: Hawaii and New Mexico.

Washington State is a member of the Streamlined Sales Tax (SST) Governing Board. As an SST member state, it is required to follow – and does follow – the Streamlined Sales and Use Tax Agreement’s (SSUTA) sourcing regime.[1] This sourcing regime uses the familiar hierarchical approach:

If the buyer receives the product at the seller’s business location, the sale is sourced to the seller’s business location.
If the product is not received at the seller’s business location, the sale is sourced to the location where receipt by the purchaser (or the purchaser’s donee, designated as such by the purchaser) occurs, including the location indicated by instructions for delivery to the purchaser (or donee) known to the seller.
If neither apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the seller’s business records (typically the purchaser’s billing address).

As applied to sales of services, the terms “receive” and “receipt,” as used in the sourcing hierarchy, mean “making first use of services.”[2]

As applied to sales of advertising services delivered using the internet, the first rung of the sourcing hierarchy generally would not apply because the first use of the advertising service would not occur at a business location of the purchaser.

The Washington Department of Revenue (DOR) is in the process of developing interim guidance on how sellers are to source sales of advertising services. DOR representatives told us they are taking a close look at whether it is appropriate to source these sales to the location where the advertisement is viewed. They said they are focusing on how to interpret the phrases “receipt by the purchaser” and “known to the seller” in the second rung of the sourcing hierarchy.

In the context of internet advertising, how and where does a purchaser “make first use of” the service?

Internet advertising is a largely automated function capable of serving up millions of advertisements to millions of viewers per minute. Typically, the technology serving the ads is not connected to the service provider’s billing system. Does the second rung of the sourcing hierarchy require such granularity that the sale of the advertising service be sourced to the locations of the myriad ad viewers? Does the supply of each internet ad constitute a separate sale that must be individually sourced? Or does the purchaser make first use of the advertising service at its headquarters? If the answers to the first two questions are “yes,” it would put unbelievable complexity and administrative burden on the seller, make audits unnecessarily time-consuming, and undermine SSUTA’s fundamental [...]

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Maryland sales tax multiple points of use exemptions: Is the juice worth the squeeze?

by Eric D. Carstens, Stephen P. Kranz and Mark Nebergall | Jun 27, 2025 | Allocation/Apportionment, Maryland, Nationwide Importance, Sales Tax, Tax Base

In the waning days of its 2025 session, the Maryland Legislature passed the Budget Reconciliation and Financing Act, and Governor Wes Moore signed it into law.[1] This bill expands the sales tax base to include sales of various data and information technology and cloud computing services.[2] The sales tax rate on these new categories of taxable services is 3% as opposed to the prevailing state-wide tax rate of 6%. Imposition of the tax on sales of these new categories is effective starting July 1, 2025.

Putting aside the unworkable nature of keying the imposition to North American Industry Classification System codes and the obvious Internet Tax Freedom Act preemption of the imposition on web hosting and data storage, the Maryland Comptroller recently issued interim guidance that adds new, unwarranted complexity in the administration of multiple points of use (MPU) exemption certificates.

The new law takes effect July 1, and many taxpayers are scrambling to interpret and implement it. On June 10, the Comptroller issued a bulletin providing guidance on many of its more technical components,[3] which introduces a distinction between installment sales of and subscriptions to the newly taxable categories of services. This distinction has implications for managing MPU exemption certificates.

Included with the guidance are provisions that give buyers of these newly taxable services (if they plan on using the services in more than one jurisdiction) the option of providing the seller with an MPU exemption certificate.[4] Receipt by the seller of an MPU exemption certificate relieves the seller of the obligation to collect and remit Maryland sales tax on the sale, shifting the obligation of paying the use tax to the buyer.[5] The applicable tax the buyer must pay is determined using a reasonable method of apportionment of the use within Maryland as compared to all the locations of use of the service. Relevant headcount is a reasonable method of apportionment.[6] The presentation of an MPU exemption certificate by the buyer to the seller is optional.

In an installment sale context, there is one sale transaction that occurs at the time of contract execution. Buyers electing into the MPU process would need to supply only one certificate to the vendor that would cover all subsequent installment payments under the contract. Subscriptions are treated differently. Many of these newly taxable categories of computer-related services often are sold on a subscription basis. Under the guidance, each subscription payment is considered a separate sale requiring the issuance of a separate MPU exemption certificate for each subscription payment.[7] We told the Comptroller’s staff that requiring a separate MPU exemption certificate for each subscription payment is unnecessary. The staff responded saying that the rigidity of the process they’ve outlined in this context is under consideration and may be updated in subsequent guidance. (Vendors and buyers concerned about the practical implications of the MPU regime outlined are encouraged to contact the authors of this blog post for more details.)

What to know about Illinois’s 2025 amnesty programs

by Mary Kay McCalla Martire and Fred M. Ackerson | Jun 26, 2025 | Audits, Franchise Tax, Illinois, Income Tax, Transaction Taxes

On May 31, 2025, the Illinois General Assembly passed House Bill 2755, which contains three amnesty programs the state estimates will substantially increase its coffers. Illinois Governor JB Pritzker signed the bill into law on June 16, 2025.

General Amnesty Program (35 ILCS 745/10)

The Illinois Department of Revenue (IDOR) will run a general amnesty program from October 1, 2025, through November 15, 2025. During this period, taxpayers who pay “all taxes due” to the State of Illinois for any taxable period ending after June 30, 2018, and before July 1, 2024, will have all associated interest and penalty charges waived.

IDOR regulations provide key details, including:

“Eligible tax liabilities” include any taxes (other than the motor fuel use tax) that are imposed by the State of Illinois and collected by IDOR.

Taxpayers can selectively participate in the program by paying all taxes due for an eligible tax liability (e.g., income tax but not sales tax) or for a particular tax period (e.g., 2022 but not 2023).

Specific procedures for amnesty participation by taxpayers under audit, with disputes pending in the Fast Track Resolution Program or before the Informal Conference Board.

Amnesty can also be granted to taxpayers with civil cases pending in state courts, in administrative hearings, or at the Illinois Independent Tax Tribunal, provided the litigation is dismissed before the end of the amnesty period by agreed order entering judgment in favor of IDOR.

Taxpayers can participate by making estimated payments of the taxes due, including additional Illinois taxes that will result from a federal change that has not become final.

Taxpayers participating in the amnesty program may claim a refund for an overpayment of an established liability based on an issue that is not an amnesty issue or of an estimated payment, including one based on an estimated federal change.

We expect IDOR to publish additional guidance and forms on its website prior to the program’s October 1, 2025, inception.

Franchise Tax Amnesty Program (805 ILCS 8/5-10)

The Illinois Secretary of State will run a franchise tax amnesty program from October 1, 2025, through November 15, 2025. The program applies to franchise taxes or license fee liabilities for any tax period ending after June 30, 2019, and on or before June 30, 2025. Payment of all franchise taxes and license fees due for any taxable period will result in abatement of any associated interest or penalties.

Notes:

There are no regulations related to the Franchise Tax Amnesty Program.

The Franchise Tax Amnesty Program has much more limited eligibility than IDOR’s General Amnesty Program. Taxpayers who have received interrogatories from the secretary’s Department of Business Services or that are a party to any civil, administrative, or criminal investigation or litigation for nonpayment of franchise tax or license fees are not eligible to participate.

The Secretary may publish additional guidance and forms on his website prior to [...]

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Washington’s Digital Ad Tax Enacted: Is Litigation Now Inevitable?

by Stephen P. Kranz, Mark Nebergall and Jonathan C. Hague | May 21, 2025 | Allocation/Apportionment, Constitutional Issues, Nationwide Importance, Sales Tax, Tax Base, Washington

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 [...]

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Washington’s Digital Ad Tax: A Lawsuit Waiting To Happen?

by Stephen P. Kranz, Mark Nebergall and Jonathan C. Hague | May 1, 2025 | Allocation/Apportionment, Constitutional Issues, Nationwide Importance, Sales Tax, Tax Base, Washington

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 [...]

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