Broadcast radio advertising may be excluded, but dollars made from the sale of internet ads would be at risk in a bill advancing in New York. The proposal has united small businesses, entrepreneurs, and digital creators in a coalition called Internet for Growth. The group is urging Gov. Kathy Hochul to reject the proposed digital ad tax, which would use the funds collected to fund state unemployment programs.
The Digital Ad Tax Act or DATA (Senate Bill S.173) would create a tax on digital advertising sales that would vary depending on the size of the company. It would tack on a 2.5% surcharge for companies with between $100 million and $1 billion in annual gross revenue. That tax rate would tick up to 5% for companies with $1 billion to $5 billion in annual gross revenue, rising to 7.5% for companies with revenue of $5 billion to $15 billion. And it would top out at 10% for companies with $15 billion or more in annual revenue.
The Internet for Growth coalition says New York already bears the highest tax burdens in the nation. It warns in a letter to Hochul that adding a digital ad tax would further strain businesses and individuals, potentially driving investment to states with more favorable tax environments.
“Digital advertising is especially critical for small businesses that cannot afford traditional media,” Executive Director Brendan Thomas says. “Unlike print, radio, or TV, digital platforms allow businesses to launch campaigns for just a few dollars a day, helping them compete with larger brands and grow their customer base.” The group also says that New York City’s advertising industry accounts for 19% of all advertising jobs nationwide.
The Internet for Growth coalition is also critical of taxing digital ads to pay for state unemployment programs. It says that approach will not only fail to solve New York’s employment challenges, but it could actually exacerbate them by increasing costs for businesses and reducing job opportunities.
“New York is the world’s advertising and media capital, yet this tax threatens one of its most vital industries,” Thomas says. “Digital advertising is crucial for small businesses, entrepreneurs, and creators to reach customers, grow, and compete. But it’s not just about sales — employers rely on it to find and hire workers. Taxing digital ads will raise hiring costs, worsening unemployment instead of solving it.”
New York becomes the latest state to consider a tax on advertising. Its neighbor, Connecticut, has also looked into a proposed digital advertising tax on businesses operating in the state. A bill introduced during the 2023 session (HB 5673) would have created a 10% tax on the annual gross revenues derived from digital advertising services for any business with annual worldwide gross revenues exceeding $10 billion. Supporters estimated the new tax could mean as much as $250 million a year for the state treasury. But the bill faced opposition from a coalition of advertising and media organizations, including the National Association of Broadcasters, and it was ultimately scrapped.
To date, only Maryland has adopted an ad tax that targets companies with at least $100 million of global annual gross revenues. However, the law adopted in 2021 has been tied up in legal challenges from companies including Google, Meta, Apple and Peacock. They mostly question its constitutionality and whether it violates the 2004 federal Internet Tax Freedom Act (“ITFA”) that prohibits state and local governments from adopting higher tax rates for online sales. But even since it passed, at least 13 other states have considered similar plans, including California, Rhode Island, Nebraska, Louisiana and Virginia. Depending on how the court cases proceed for Maryland, it could open the door wider to other states.
But with appeals likely, attorneys say it could be years before there is a final ruling on the Maryland law. The state is already charging the tax, however. The law firm Shulman Rogers says in a recent client update that Maryland collected $93 million in 2022 and $82.5 million in 2023, with that money going to the state’s education system.