Peter D. Enrich, Michael Mazerov, Darien Shanske, Robert D. Plattner & Doug Sheppard, Checking In on Data Taxes and Related Reforms, 120 Tax Notes State 333 (May 4, 2026).
In this installment, the authors evaluate the latest state proposals to tax data and digital services, as well as the chances of recently enacted data tax levies withstanding legal challenges.
When we talked about this five years ago, the only actually enacted tax was the Maryland digital advertising tax, which of course is still on the books, still being collected, and still subject to ongoing litigation. But now, by my count, that’s been joined by enacted taxes in three additional places: a new “targeted advertising tax” enacted last week in Utah, last year’s extension of the sales tax to certain advertising services in the state of Washington, and the enactment last fall of a “social media data tax” in Chicago very much modeled on Rob’s original New York bill, with Gov. JB Pritzker [D] proposing in his budget starting in July something very analogous to that.
I do think, and this may not be a constructive or realistic suggestion at present, but at some point, someone needs to recognize how weird it is that ITFA is still out there in the world. I mean, ITFA was first introduced in the infancy of the internet as a way to protect it and allow it to grow, and yet it’s been preserved and expanded because the internet has turned into not something in its infancy, but to a vast part of American commerce with immense political and economic power. And there’s a real irony there. Someday, some Congress is going to recognize that it doesn’t any longer make any sense to be treating what’s probably the most dominant piece of the American economy as some infant that needs protection.
I obviously agree, but there’s a constitutional superstructure to consider, I think, to your question about predominance: If your perspective is that the states have plenary sovereign power and have revenue power in order to serve their citizens, and it’s exceptional that the federal government is limiting state revenue power, and we’re particularly concerned that Congress can limit state revenue power and do favors to big national industries that cost them nothing, then that will instruct how to read these statutes. And I think that is why we have a presumption against preemption and a presumption against broad preemption, and these canons are one reason why the state should win in close cases, even if this were a close case somehow, which I don’t actually think.
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