Report from MediaPost
In Brief – Digital services and network giant Comcast has sued to block a Washington state law that imposes sales taxes, which vary by county and range from 7.5% to 10.6%, to advertising services, alleging that the measure violates the federal Permanent Internet Tax Freedom Act (PITFA) by imposing the taxes on services when used for online advertising but exempting most offline advertising from the levy. The suit filed in Thurston County Superior Court asks to suspend the tax that is slated to take effect on October 1st. Although the law defines taxable advertising services as “digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements”, it then exempts advertising services provided to newspapers, “printing or publishing,” and radio and television broadcasting, as well as services for out-of-home signage, like billboards and signs stadiums and other venues. Comcast is seeking a declaratory judgment that the new state tax law is unconstitutional, arguing that a state can’t constitutionally enact laws that violate a federal statute such as PITFA.
Context – Several US states have explored taxes that aim to replicate the foreign “digital services taxes” (DSTs) that increase taxes on digital giants like Google, Meta, and Amazon. Foreign country DSTs, which first emerged in Europe in 2020, have been strongly opposed by President Trump and continue to be an issue in ongoing tariff and trade negotiations. Maryland was the first to act, enacting a tax on digital advertising services in 2021 that seems to clearly violate PITFA because offline advertising is not taxed the same way as online ads. Federal and state judges have so ruled, but a morass of jurisdiction battles related to the proper legal venues for state tax challenges has tied up the litigation for years and it is currently in the Maryland Tax Court, a state tax administrative body. Washington, New York, California, Rhode Island and Minnesota have since pursued their own types of digital taxes and backers are calling for a coordinated digital tax campaign by states to circumvent PITFA reminiscent of the online sales tax campaign.