Digital Ad Tax Isn't How Washington Should Modernize State Code

"In an ill-fated effort to "modernize" its tax code, Washington state expanded its sales tax to include digital advertising, among other services. Modernizing sales tax is a noble goal, but not at the expense of hurting state businesses and violating fundamental principles of sound sales tax policy. It's too late in the day for the tax to be vetoed, since it took effect Oct. 1, but the state should still reverse course and repeal this folly."

"That trial focused on whether Maryland's tax violates the Internet Tax Freedom Act, or ITFA. (It does.) In August, a federal appeals court ruled that Maryland's tax is an unconstitutional restriction on free speech. The ITFA preempts conflicting state laws and prohibits discriminatory taxes on interstate commerce. Like Maryland, Washington taxes all forms of digital advertising while exempting almost all non-digital advertising conducted offline-a clear ITFA violation. A subsidiary of Comcast Corp. sued in September, asserting that Washington's law unconstitutionally violates ITFA."

Washington state expanded its sales tax to include digital advertising and other services, and the new levy took effect Oct. 1 after Gov. Bob Ferguson signed the bill on May 20. A Maryland trial and a federal appeals-court ruling found Maryland's digital-advertising tax violated the Internet Tax Freedom Act and amounted to an unconstitutional restriction on free speech. Washington's law taxes all forms of digital advertising while exempting almost all offline, non-digital advertising, creating discriminatory treatment that likely conflicts with ITFA. A Comcast subsidiary filed suit alleging the Washington law violates ITFA. The change risks harming state businesses and departs from sound sales-tax policy.

Read at Bloombergtax