The map is a mess

There's no standard playbook here. Utah, Tennessee, Rhode Island, and Pennsylvania are each pursuing digital ad taxes, but through different mechanisms, revenue thresholds, and exemption structures. One state's taxable ad impression is another's exempt marketing service. That inconsistency is a compliance problem that compounds every time you scale into a new market.

Washington already moved. Its digital advertising tax took effect October 1, 2025, sweeping in online ad placement, digital campaign support, data processing, and related services. Traditional media like print, radio, TV, and billboards remains exempt. Comcast and major streaming platforms immediately filed suit, arguing the law discriminates against digital commerce and violates the Internet Tax Freedom Act (ITFA). The state has $475 million in projected revenue on the line if courts disagree.

Maryland is in a similar position, defending its digital ad revenue tax (ranging from 2.5% to 10%) while simultaneously applying a new 3% sales tax on IT and software publishing services. In August, the Fourth Circuit struck down Maryland's "pass-through provision"—the part that barred businesses from disclosing the tax as a line item to customers—unanimously ruling it a First Amendment violation. 

The fine print is where it gets complicated

Bills in active hearings are already embedding the complexity that makes this space so hard to track: revenue thresholds that determine who's even subject to the tax, carve-outs for certain media types, and constitutional tripwires that are already drawing legal challenges. 

That matters for businesses trying to assess exposure. Whether you're caught by a new digital ad tax may depend less on what you spend and more on how a state defines "digital advertising," where your customers are located, and whether your revenue clears a threshold that hasn't been published yet.

Watch Colorado

Of all the active developments, Colorado is the one to keep closest tabs on. Its legislation goes beyond advertising taxes into software and SaaS, a signal that the tax target is expanding beyond marketing spend into digital infrastructure broadly. If Colorado advances, it could become a blueprint for states looking to capture revenue from the entire digital stack, not just the ad layer on top.

Combined with Washington's sharp increase to its advanced computing surcharge—jumping from 1.22% to 7.5% for large affiliated groups beginning January 2026—the direction is clear: states are moving toward comprehensive taxation of digital-first business models, not piecemeal ad-specific rules.

The compliance gap is real

Automation tools and tax compliance operations are still calibrating to the previous wave of legislation. Vermont and Louisiana taxing SaaS caught plenty of finance teams flat-footed. This next wave is arriving faster than most compliance programs are built to absorb.

The gap between what's being proposed and what businesses are actually prepared for is growing. And unlike a new nexus threshold, which is relatively simple to operationalize, ad tax compliance requires understanding how each state defines the taxable service, which platforms or transactions are in scope, and how to calculate and remit across multiple overlapping jurisdictions simultaneously.

What to do now

Waiting for bills to pass before acting puts you behind by a quarter, minimum. Here's where to focus:

Monitor active hearings. Several of these bills have committee dates scheduled now. Knowing when a proposal clears a key hurdle gives you lead time to assess exposure and update systems.

Map your cross-state ad spend. Understand where your digital advertising is being delivered, what vendors are in the chain, and whether those states have proposals in motion.

Build flexibility into your compliance operations. Revenue thresholds, exemption structures, and effective dates will vary. Systems that can't accommodate new tax types quickly will create drag every time a new law takes effect.

The constitutional questions around ITFA may ultimately reshape or narrow some of these taxes. But litigation takes years. In the meantime, compliance obligations don't pause for court calendars.

If you have questions about how these changes affect your business, talk to our team.