Washington’s New Digital Ad Sales Tax: Unconstitutional, Unfair, and Economically Unsound
A Troubling Development for Digital Commerce
By Sebastian Griffin
In a move that has sent shockwaves through Washington’s tech industry, state lawmakers have enacted a new tax that targets an extensive range of digital services. Senate Bill 5814 promises to make life more difficult for tech giants and small businesses alike by significantly broadening the state’s retail sales tax to encompass everything from digital advertising to IT support.
What You Need to Know About the New Tax
Starting October 1, 2025, services such as digital advertising, website design, software development, SEO, and even network training will face the state’s hefty sales tax, which reaches up to 10.6% in certain areas. Strikingly, this new tax overlooks traditional media services—like newspaper ads and radio spots—which remain untouched. This selective taxation not only seems unfair but also promotes a problematic practice of favoring certain businesses over others.
Impact on Small Businesses
For small businesses already grappling with slim profit margins, this tax poses a serious threat. Many local entrepreneurs are raising concerns that ongoing projects may be forced to either cancel or relocate to avoid the burdensome tax. Digital marketing leader Curtis Costner from Tacoma encapsulated these worries, stating, "It’s just more difficult for businesses to do business with other businesses in their locality."
Other industry voices echo his sentiments. Scott Foreman, a partner at the Seattle-based agency Copacino + Fujikado, warns, "They think they can milk this cow forever, but cows eventually always move to the greener pastures." The implication is clear: clients may soon flee to states with more business-friendly tax environments, potentially siphoning off jobs and innovation.
Legal Challenges Looming
The discriminatory nature of this tax—targeting digital services while sparing traditional advertising—could provoke legal repercussions. According to the Tax Foundation, this disparity might trigger a court challenge under the Internet Tax Freedom Act (ITFA), a federal law designed to protect digital commerce from unfair taxation. By treating digital services differently than physical ones, Washington’s new tax potentially lays the groundwork for a legal battle reminiscent of a similar recent ruling in Maryland, where a digital ad tax was struck down for violating both the ITFA and the U.S. Constitution’s Commerce Clause.
Justifying the Tax: A Thin Argument
Lawmakers defend this new tax as an essential step in the “modernization” of Washington’s tax system, arguing that a service-driven economy should pay its fair share. However, there’s a fine line between modernization and government overreach. Selecting "winners and losers" in taxation is not only inequitable, but it also deviates from sound fiscal policy.
Conclusion: An Urgent Call for Change
This digital ad tax fails to adhere to the principles of robust tax policy. By creating additional red tape, introducing constitutional ambiguities, and risking the departure of innovative talent, lawmakers are doing more harm than good. Instead of addressing budget gaps with short-term fixes that threaten economic dynamism, it’s time for action that supports the businesses driving growth and prosperity in Washington.
If you’d like to learn more about this issue, check out Mountain States Policy Center, where you can find further insights into the economic impact of such legislation and the broader implications for business in Washington state.
About the Author
Sebastian Griffin is the lead researcher for the Junkermier Center for Technology and Innovation at Mountain States Policy Center, an independent research organization engaged with issues in Idaho, Montana, Eastern Washington, and Wyoming. Discover more about their research at mountainstatespolicy.org.
