Key Takeaways
- Seasoned with SALT: States Want Their Share of Digital Ads
- States Keep an Eye on Maryland Digital Ad Tax
- Possible Compliance Solutions for Small Businesses Post Wayfair
- Southeastern State DORS Look to Adopt AI
- Oregon's "Kicker" Tax Available for 2025
Welcome to this edition of our roundup of state tax developments. The State Tax News and Views is published biweekly. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance and incentive needs.
State Taxation in the Digital Era: Maryland's Pioneering Tax and Washington's Controversial Expansion of Sales Tax to Digital Ads
Digital Advertising Services Taxes: States Catch Up and Look Ahead - Lindsay McAfee Cukier, Robert M. Wood, Inna Volfson, and Michael Spencer, Tax Notes ($)
The digital advertising sector continued its robust growth in 2024 and 2025, with total revenues surpassing a quarter of a trillion dollars worldwide. Consequently, digital advertisement taxes have increasingly garnered attention across various states, as digital advertising service taxes have grown across Europe and Canada and state governments seek to explore new revenue streams. Maryland adopted the nation’s first tax on digital advertising in 2021; legislative analysts have estimated such a tax would generate as much as $250 million per year for the state. Over the last several years, many states, including California, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New York, Rhode Island, South Dakota, Tennessee, and Washington, have proposed legislation to impose a digital advertising tax of their own.
Recent Fourth Circuit Decision Has Implications for SALT Transparency - Cameron Browne, Tax Notes ($):
A recent federal decision against Maryland preventing companies from line-iteming digital advertising taxes could have significant implications for other states that have such provisions on taxes, according to a tax attorney.
Jeffrey A. Friedman of Eversheds Sutherland (US) LLP said at an October 28 panel at the Paul J. Hartman State and Local Tax Forum in Nashville, Tennessee, that the Fourth Circuit’s recent holding in Chamber of Commerce of the United States v. Lierman may cause other anti-passthrough provisions in other states to be challenged on First Amendment grounds.
Jeffrey A. Friedman of Eversheds Sutherland (US) LLP said at an October 28 panel at the Paul J. Hartman State and Local Tax Forum in Nashville, Tennessee, that the Fourth Circuit’s recent holding in Chamber of Commerce of the United States v. Lierman may cause other anti-passthrough provisions in other states to be challenged on First Amendment grounds.
Digital Ad Tax Isn't How Washington Should Modernize State Code - Richard Pomp, Bloomberg Tax ($):
In an ill-fated effort to “modernize” its tax code, Washington state expanded its sales tax to include digital advertising, among other services. Modernizing sales tax is a noble goal, but not at the expense of hurting state businesses and violating fundamental principles of sound sales tax policy.
It’s too late in the day for the tax to be vetoed, since it took effect Oct. 1, but the state should still reverse course and repeal this folly.
It’s too late in the day for the tax to be vetoed, since it took effect Oct. 1, but the state should still reverse course and repeal this folly.
State Sales Tax Spotlight: Wayfair Compliance Challenges and California Finds Lease Taxable
NTUF Offers Solutions to Wayfair Compliance Difficulties for Remote Sellers - Tax Notes ($):
The National Taxpayers Union Foundation (NTUF) published an issue brief analyzing the compliance challenges that remote sellers have faced since the Supreme Court’s 2018 decision in South Dakota v. Wayfair Inc.; while large retailers tend to have experience complying with multistate sales tax collection requirements, small online businesses generally do not.
The NTUF offered several state-level solutions to this challenge, such as joining the Streamlined Sales and Use Tax Agreement, raising sales thresholds above South Dakota’s, discounting marketplace sales against sales thresholds, measuring sales into a state by the calendar year, and delaying collections until 30 days after the threshold has been crossed.
The NTUF also provided a state-by-state series of legislative recommendations for states to ease the compliance burden on their remote sellers.
The NTUF offered several state-level solutions to this challenge, such as joining the Streamlined Sales and Use Tax Agreement, raising sales thresholds above South Dakota’s, discounting marketplace sales against sales thresholds, measuring sales into a state by the calendar year, and delaying collections until 30 days after the threshold has been crossed.
The NTUF also provided a state-by-state series of legislative recommendations for states to ease the compliance burden on their remote sellers.
California Panel Upholds Sales Tax On Hoist Leases - Sanjay Talwani, Law360 ($):
A company's provision of hoists used in construction projects as well as ancillary equipment was mostly subject to sales tax, the California Office of Tax Appeals affirmed in a decision released Monday.
In an opinion, the OTA substantially upheld a finding by the California Department of Tax and Fee Administration of $281,000 in sales taxes due, plus interest, on $2.3 million in unreported taxable leases from 2013 to 2016. The office rejected the arguments of USA Hoist Company Inc. that its hoists — temporary external elevators used in construction — were not under the control of its customers because it provided operators who retained full control over the hoists, thus turning what might otherwise be taxable leases into nontaxable service agreements.
In an opinion, the OTA substantially upheld a finding by the California Department of Tax and Fee Administration of $281,000 in sales taxes due, plus interest, on $2.3 million in unreported taxable leases from 2013 to 2016. The office rejected the arguments of USA Hoist Company Inc. that its hoists — temporary external elevators used in construction — were not under the control of its customers because it provided operators who retained full control over the hoists, thus turning what might otherwise be taxable leases into nontaxable service agreements.
State Sourcing: Washington's B&O Changes
Law Firm Required to Source Litigation Income to Washington - Christopher Jardine, Tax Notes ($):
A Pacific Northwest law firm must apportion its gross income from Washington insurance litigation services to the state, a state appeals court has held, affirming around $600,000 in business and occupation (B&O) taxes against the company.
In a November 3 decision in Betts Patterson & Mines PS v. Washington Department of Revenue, the Washington Court of Appeals upheld the Washington Board of Tax Appeals' finding that legal services provided by Betts Patterson & Mines PS (BPM) to insurance companies were received in Washington because that was where the litigation occurred, and the income from those services should therefore be apportioned to the state for B&O tax purposes.
[...]
In 2010 the Washington State Legislature changed the state's apportionment method to look at where customers received the benefit rather than where the services were performed.
In a November 3 decision in Betts Patterson & Mines PS v. Washington Department of Revenue, the Washington Court of Appeals upheld the Washington Board of Tax Appeals' finding that legal services provided by Betts Patterson & Mines PS (BPM) to insurance companies were received in Washington because that was where the litigation occurred, and the income from those services should therefore be apportioned to the state for B&O tax purposes.
[...]
In 2010 the Washington State Legislature changed the state's apportionment method to look at where customers received the benefit rather than where the services were performed.
Washington Announces New Payment Card Processing Business, Occupation Tax - Tax Notes ($)
The Washington Department of Revenue published a special notice to remind relevant businesses that they must report income from payment card processing activities under the state's new payment card processing business and occupation (B&O) tax classification, which is taxed at a rate of 3.1 percent, effective January 1, 2026.
The DOR also clarified that gross income subject to B&O tax under the new classification may also be subject to the surcharge on specified financial institutions and the workforce education investment surcharge.
The DOR also clarified that gross income subject to B&O tax under the new classification may also be subject to the surcharge on specified financial institutions and the workforce education investment surcharge.
Other SALT Updates: Southeastern State Departments Look to Adopt AI; Illinois Makes SALT Workaround Permanent; and Oregon's "Kicker" Tax Available for 2025
Southeastern DORs Cautiously Adopting Customer-Facing AI Programs - Christopher Jardine, Tax Notes ($):
State revenue departments are exploring using artificial intelligence to improve taxpayer services, with Alabama, Tennessee, and Georgia each developing projects focused on customer interaction and internal efficiency.
Illinois
Illinois Bill Would Nix Some Federal Tax Changes, Keep SALT Workaround - Emily Hollingsworth, Tax Notes ($):
Illinois lawmakers recently approved legislation to decouple from business deduction changes in the federal tax bill, while making the state and local tax cap workaround for passthrough entities permanent.
The bill as amended decouples from IRC section 168(n), which was created under the federal One Big Beautiful Bill Act (P.L. 119-21) and allows for a bonus depreciation deduction of qualified production property.
[...]
S.B. 1911 also makes the state's SALT deduction cap workaround permanent by removing the January 1, 2026, sunset date.
The bill as amended decouples from IRC section 168(n), which was created under the federal One Big Beautiful Bill Act (P.L. 119-21) and allows for a bonus depreciation deduction of qualified production property.
[...]
S.B. 1911 also makes the state's SALT deduction cap workaround permanent by removing the January 1, 2026, sunset date.
Oregon
Oregon’s $1.41B Surplus Triggers 2025 “Kicker” Tax Credit - Colette Sutton, Eide Bailly:
The Oregon Office of Economic Analysis has confirmed a revenue surplus of more than $1.41 billion for the 2023–2025 biennium, triggering the state’s “kicker” tax credit for the 2025 tax year. The kicker is a refund mechanism that returns surplus revenue to taxpayers when actual collections exceed forecasts by at least 2%. This credit will not be issued as a check; instead, it will appear on 2025 Oregon personal income tax returns filed in 2026, either increasing refunds or reducing taxes owed. To qualify, taxpayers must file both 2024 and 2025 returns—even those without a filing obligation for 2025 must submit a return to claim the credit. The amount equals 9.863% of the 2024 personal income tax liability before credits, with adjustments for any credit claimed for taxes paid to another state.
Texas
Texas Voters Ban Future Capital Gains, Stock Transaction Taxes - Leah McBride Mensching, Bloomberg Tax ($):
Voters Tuesday approved Proposition 6 (HJR 4), which prohibits the legislature from imposing new taxes on securities transactions, and from taxing financial institutions, brokers, and dealers working in the securities market.
[...]
Texas voters also backed Proposition 2 (SJR 18), which would create a state constitutional amendment to prohibit imposing a future tax on the realized or unrealized capital gains of an individual, family, estate, or trust.
Texas doesn’t have a capital gains tax, but because the Texas Constitution does not explicitly prohibit the tax, it “leaves open the possibility that a future legislature could attempt to impose such a tax, potentially undermining Texas’ economic competitiveness,” a resolution analysis of the proposition states.
[...]
Texas voters also backed Proposition 2 (SJR 18), which would create a state constitutional amendment to prohibit imposing a future tax on the realized or unrealized capital gains of an individual, family, estate, or trust.
Texas doesn’t have a capital gains tax, but because the Texas Constitution does not explicitly prohibit the tax, it “leaves open the possibility that a future legislature could attempt to impose such a tax, potentially undermining Texas’ economic competitiveness,” a resolution analysis of the proposition states.
SEASONED WITH SALT - Tax Tips, Tricks and Opportunities
Clicks, Conversions, and Compliance: Digital Ad Taxes - Chris Martin, Eide Bailly:
Digital advertising taxes seem to be all the rage these days in the SALT world. But how did we get here?
Well, states need revenue and social media companies generate a lot of revenue from online ads. So the states are going where the money is.
In 2021 Maryland adopted the country’s first tax on digital advertising. Some estimated it might raise as much as $250 million in tax revenue for the state. Each year! But the Fourth Circuit in Chamber of Commerce et al. v. Lierman, (Aug. 15, 2025) threw cold water on the Maryland law by ruling that the provision prohibiting a taxpayer from passing on the cost of the digital advertising tax to a purchaser on an invoice restricts the taxpayer’s First Amendment free speech rights.
Maryland state courts are also hearing whether the digital ad tax violates the U.S. federal commerce clause and the Internet Tax Freedom Act, because for example, Maryland taxes most digital ads but not offline, nondigital ads.
Over the last few years more than a dozen states have introduced similar legislation to impose a digital advertising tax. These online ad taxes are in addition to a state’s income tax imposed on these same companies. They are imposed in addition to sales tax on purchases consumers make after they click on an ad and buy a product. I think the reasons more states have not followed Maryland are the constitutional challenges the law is facing and difficulties in how to administer the tax and source the revenue.
Some states have also proposed bills that would expand the sales tax base to include digital advertising services. Washington state did pass legislation, which took effect on Oct. 1, 2025, subjecting those services to retail sales tax and B&O gross receipts tax as well.
To avoid any potential issues with digital ad taxes, Minnesota Legislature introduced a bill (SF3197) last spring that would have imposed a tax on the 15 largest social media companies based on the number of users from whom the companies collect data. While the bill did not pass and is not technically a tax on digital advertising, it shows states’ desire and creativity to attempt to tax companies, like Meta and X.
This writer is more than a bit skeptical that these laws will pass constitutional muster in the end. And if they do, will it generate the expected revenue considering administration and enforcement challenges? Keep clicking on tax articles like this in the future and find out!
Contact Eide Bailly's SALT team if you have questions about how this may apply to your business.
Well, states need revenue and social media companies generate a lot of revenue from online ads. So the states are going where the money is.
In 2021 Maryland adopted the country’s first tax on digital advertising. Some estimated it might raise as much as $250 million in tax revenue for the state. Each year! But the Fourth Circuit in Chamber of Commerce et al. v. Lierman, (Aug. 15, 2025) threw cold water on the Maryland law by ruling that the provision prohibiting a taxpayer from passing on the cost of the digital advertising tax to a purchaser on an invoice restricts the taxpayer’s First Amendment free speech rights.
Maryland state courts are also hearing whether the digital ad tax violates the U.S. federal commerce clause and the Internet Tax Freedom Act, because for example, Maryland taxes most digital ads but not offline, nondigital ads.
Over the last few years more than a dozen states have introduced similar legislation to impose a digital advertising tax. These online ad taxes are in addition to a state’s income tax imposed on these same companies. They are imposed in addition to sales tax on purchases consumers make after they click on an ad and buy a product. I think the reasons more states have not followed Maryland are the constitutional challenges the law is facing and difficulties in how to administer the tax and source the revenue.
Some states have also proposed bills that would expand the sales tax base to include digital advertising services. Washington state did pass legislation, which took effect on Oct. 1, 2025, subjecting those services to retail sales tax and B&O gross receipts tax as well.
To avoid any potential issues with digital ad taxes, Minnesota Legislature introduced a bill (SF3197) last spring that would have imposed a tax on the 15 largest social media companies based on the number of users from whom the companies collect data. While the bill did not pass and is not technically a tax on digital advertising, it shows states’ desire and creativity to attempt to tax companies, like Meta and X.
This writer is more than a bit skeptical that these laws will pass constitutional muster in the end. And if they do, will it generate the expected revenue considering administration and enforcement challenges? Keep clicking on tax articles like this in the future and find out!
Contact Eide Bailly's SALT team if you have questions about how this may apply to your business.
Make a habit of sustained success.
Every organization deserves to realize its full potential. Let us help you find yours.
Learn More
