State proposals to tax digital ads are popping up everywhere

By Jessi Vice, J.D., LL.M., Washington, D.C., and Sarah McGahan, J.D., LL.M., Houston

Editor: Mary Van Leuven, J.D., LL.M.

Last year, certain jurisdictions introduced bills that would have imposed new taxes on revenues from digital advertising or expanded the state sales tax base to include sales of digital advertising. This year, similar bills, as well as new proposals aimed at sales of personal data and social media providers, are popping up across the country.

Maryland recently became the first state to enact such a tax when on Feb. 12, 2021, the Maryland Senate joined the House of Delegates and voted to override Gov. Larry Hogan's veto of H.B. 732. Effective for tax years beginning after Dec. 31, 2020, H.B. 732 imposes a tax on a person's annual gross revenues derived from digital advertising services in Maryland. Legal challenges have already been filed alleging that the new tax violates the federal Internet Tax Freedom Act, P.L. 105-277, and the U.S. Constitution's Commerce Clause. States considering similar legislation are likely following the litigation closely. As of this writing, there was legislation pending that would push the effective date of Maryland's digital advertising tax to tax years beginning after Dec. 31, 2021.

Digital advertising services taxes

Certain states have pending proposals similar to the new Maryland law that would impose tax on persons deriving revenue from digital advertising services. In other states, proposals are targeted to digital advertising revenues earned by social media providers. One state, New York, has proposed bills that would expand the state's sales and use tax to sales of digital advertising.

In the social media space, a bill has been introduced in Connecticut (H.B. 5645) that would impose tax on a social media provider's apportioned annual gross revenue derived from social media advertising services in the state. Revenue from the tax would be dedicated, in part, to funding online bullying prevention efforts and training for social isolation and suicide prevention. Two other Connecticut bills, S.B. 821 and H.B. 6187, propose to raise a number of taxes generally and would also adopt a new 10% tax on the annual gross revenues derived from digital advertising services in the state for any business with annual worldwide gross revenues exceeding $10 billion. At this point, these are purely intent bills that do not include any language on the tax rate, apportionment, or other details on the proposed taxes.

Indiana H.B. 1312 would adopt a new social media surcharge tax imposed on social media providers that have annual gross revenues from social media advertising services in Indiana of at least $1 million and have more than 1 million active account holders in Indiana. The surcharge would be equal to (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by 7%, plus (2) the total number of the social media provider's active Indiana account holders in a calendar year multiplied by $1.

To determine the amount of annual gross revenue derived from social media advertising services in Indiana, a taxpayer would apportion its revenue, using a formula that looks at Indiana social media advertising revenues over annual gross revenues from social media advertising services in the United States. There is no guidance in the bill on how to determine when revenue from social media advertising services is attributable to Indiana. Revenues from the surcharge tax would be contributed to a new fund called the "online bullying, social isolation, and suicide prevention fund."

In New York, A.B. 734 and S.B. 302 would extend the state's sales and use tax to sales of digital advertising, except sales for resale. The definition of "digital advertising services" includes "banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services which markets or promotes a particular good, service, political candidate or message." The revenues from the sales tax would be used to provide zero-interest refinancing of eligible student loans, and the tax would be repealed after five years. New York S.B. 1124, which is nearly identical to the Maryland legislation, would impose tax on the annual gross revenues derived from providing digital advertising services in New York.

Similarly, Montana H.B. 363 would impose a 10% tax on annual gross revenue derived from digital advertising services in Montana. The tax would apply only to persons with at least $25 million in worldwide annual gross revenue from digital advertising services and with some receipts from Montana advertising services.

Finally, there are several proposals in Massachusetts. House Docket 3210 would impose tax on a taxpayer with at least $50 million in annual gross revenues and $100,000 in revenues derived from Massachusetts digital advertising services, with a rate ranging from 5% to 15%, depending on the taxpayer's annual gross revenues. Digital advertising services would be sourced to Massachusetts if they appear on a user's device with an IP address located in Massachusetts, or if the user is known or reasonably presumed to be using the device in the state.

Massachusetts House Docket 3601 would impose a 5% excise tax on the annual revenue from digital advertising services in Massachusetts for companies with revenue exceeding $25 million from those services. Again, a digital advertising service would be deemed to be provided in Massachusetts if it is received on a user's device with an IP address located in Massachusetts. House Docket 3558, in contrast, would establish a special commission to conduct a comprehensive study relative to generating revenue from digital advertising that is displayed inside of Massachusetts by companies that generate over $100 million a year in global revenue. The commission would be required to file its report not later than Feb. 15, 2022. House Docket 3522 and House Docket 3812 purport to impose new taxes on online or digital advertising, but the draft legislation has not yet been released for either bill.

Bills imposing taxes on sales of personal information

Other proposals focus on taxing revenues from sales of personal data. In Washington, H.B. 1303, if enacted, would extend the business and occupation tax to "every person engaging within this state in the business of making sales of personal data or exchanging personal data for consideration." The tax would be "equal to the gross income of the business multiplied by the rate of 1.8 percent." Gross income from the sale of personal information attributable to Washington state would be calculated using a ratio "expressed as a percentage, that the number of Washington addresses in the personal information bears to all addresses in the personal information," provided that only personal information used to generate income of the business is considered in the calculation. If the taxpayer is unable to attribute the gross income of the business using this method, a population method or some other reasonable method must be used to allocate receipts to Washington.

In Oregon, a state that does not impose a sales and use tax, proposed H.B. 2392 would impose a 5% gross receipts tax on the privilege of engaging in the business of selling taxable personal information at retail in Oregon. The tax base would include consideration from other than cash and cash equivalents and is based on receipts generated from selling personal information of individuals with an Oregon IP address. Personal information is defined to include information that "identifies, relates to, describes or is capable of being associated with an individual," not to include photographs.

New York A.B. 946 and S.B. 3790 would impose a 5% tax on the gross income of any corporation that derives income from the data that individuals of the state of New York share with the corporation. The funds from this tax are to be directed to a new "data fund" intended to eventually be distributed back to New York taxpayers so that they might "share in the wealth that is created from their data" (as the justification memo for a predecessor proposal, S.B. 6102, put it). The bills provide no substantive guidance on how the tax would be implemented.

In Indiana, proposed H.B. 1572 is unique in that it imposes an annual registration fee on social media providers that derive economic benefit from personal data that individual subscribers share with the providers. Only social media providers that maintain a public social media platform, derive some economic benefit from the data of Indiana individuals, and have more than 1 million active Indiana account holders would be subject to the fee.

"Social media platform" is defined to mean "a website or Internet medium that allows account holders to create, share, and view user-generated content through an account or profile; and primarily serves as a medium for users to interact with content generated by other third party users of the medium." However, social media platforms do not include email or online newspapers. An "Indiana account holder" is defined to include account holders who used an IP address located in Indiana to establish their account or with information that indicates a current residence in the state. The fee would be calculated by multiplying the number of the social media provider's active Indiana account holders in a calendar year by $5.

Interestingly, the bill does not define the term "active" or "active account holder," nor does it provide that the number of active account holders used in the fee calculation will be limited to those account holders from which the taxpayer actually derives economic benefit. In other words, it is conceivable that a taxpayer could derive economic benefit from only a small number of Indiana account holders but have over 1 million Indiana "active account holders" and still be subject to a fee of at least $5 million.


Whether any of these bills will be enacted is yet to be determined, but the sheer number of proposals this year indicates that they have captured the attention of state legislators. The states that are proposing taxes very similar to Maryland's will likely be watching closely as the litigation unfolds. The states that are considering taxes on revenues from the sales of personal information should be thinking about whether those taxes would face similar legal challenges.


Mary Van Leuven, J.D., LL.M., is a director, Washington National Tax, at KPMG LLP in Washington, D.C.

For additional information about these items, contact Ms. Van Leuven at 202-533-4750 or

Contributors are members of or associated with KPMG LLP.

The information in these articles is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of Section 10.37(a)(2) of Treasury Department Circular 230 because the content is issued for general informational purposes only. The information is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. The articles represent the views of the author or authors only, and do not necessarily represent the views or professional advice of KPMG LLP.

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.