Armanino Blog

States Aggressively Seeking Sales Tax on Digital Goods and Services

by Malcolm Ellerbe
October 29, 2020


States are becoming more aggressive with their positions that digital goods, services and even advertising revenues and sales of personal information are subject to sales tax, amusement tax, or communications taxes — and the states are winning in court when challenged.

In Detail

Over 20 states currently subject digital goods and services to sales tax. While there are currently no state sales taxes imposed on advertising revenue or sales of personal information, several states have identified this as a big revenue generator and have drafted bills for legislative consideration:

  • Maryland introduced a bill, HB 732, to create an entirely new regime to tax revenue from digital advertising services that are directed at Maryland residents. If passed the tax will be imposed if the digital advertising revenue exceeds $1,000,000 domestically or $100,000,000 globally. The tax rate ranges from 2.5% to 10%. This tax is similar to, but more aggressive than, France’s 3% tax on digital advertising.
  • New York introduced three different bills:
    • SB 8056 – Creates a new tax on digital advertisers’ annual gross revenues derived from digital advertisements in the state
    • SB 8166 – Would expand the sales tax base to include digital advertising services
    • AB 9112 – Creates a 5% gross receipts tax on corporations that collect and sell “individual data”
  • Nebraska introduced LB 989, which would tax digital advertisement. This is defined as an “advertising message delivered over the Internet that markets or promotes a particular good, service or political candidate or message.”
  • District of Columbia proposed B23-0760, which includes a 3% tax on gross receipts derived from advertising services and sales of personal information. Advertising services include things like banner advertising and search engine advertising.
  • West Virginia proposed HB 4898, which creates a new 1% “general data mining service tax” imposed on revenue from the use, collection, processing, sale or sharing of West Virginia citizens’ user data. “User data” is defined as “any information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked with an individual user, whether directly submitted to the commercial data operator by the user or derived from the observed activity of the user by the commercial data operator.”
  • Washington has a senator proposing to subject attorney fees to sales tax in exchange for eliminating the Business and Occupation gross receipts tax imposed on manufacturing activities in an effort to protect Washington’s manufacturing industry.


States will likely use the decrease in tax revenue due to COVID-19 as the rationale for introducing bills to subject additional digital goods and services to sales tax. We predict that after the November election many more states will be introducing bills to tax more digital goods and services in 2021.

Sourcing of service revenue (advertising and attorney fees) to a particular jurisdiction will be challenging, and states will have to be careful to draft bills that can avoid constitutional challenge on the basis of First Amendment freedom of speech, among others. It is interesting that most of the states proposing these new laws are not typically the ones leading new tax initiatives.

Companies generating revenue from these types of sales need to be aware of laws that are passed so they can evaluate whether they have nexus in the state and will be required to charge customers the tax. If you have any questions, contact our experts below.

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