Senate Bill 5814 (ESSB 5814), passed by the Washington legislature earlier this year, created a new sales tax on digital advertising services. Signed into law by Governor Bob Ferguson (D) on May 20, the bill, effective October 1, targets internet-based ads while sparing their traditional counterparts.
Comcast, the state's largest cable and broadband provider, fired back September 9 by suing the state and the Department of Revenue in Thurston County Superior Court. The suit demands a declaratory judgment that the tax is unconstitutional, violating the federal Internet Tax Freedom Act of 1998.
At its core, ESSB 5814 expands sales tax to encompass a wide swath of advertising services, from search engine marketing and lead generation to web campaign planning, online placements, and analytics. This isn't a gentle nudge toward a little extra tax revenue for the state, it's a hammer blow projected to rake in over $1 billion over the two-year budget cycle from FY2025 to FY2027. Proponents, including the Department of Revenue, tout it as essential funding for education, health care, and social programs. As reported by the Center Square, Spokesperson Beverly Crichfield warned that striking it down would slash the state budget, underscoring the stakes for public services.
Yet, the devil is in the discriminatory details. As Comcast's lawsuit starkly puts it, almost all forms of advertising conducted over the internet are subject to the new tax where advertising conducted off the internet are not.
This isn't neutral taxation; it's a targeted penalty on the digital economy that powers Washington's technology industry. Traditional media - think billboards, radio spots, and print ads - largely escape the tax, leaving brick-and-mortar advertisers unscathed while online platforms and their user’s foot the bill. It's a regressive scheme that disproportionately burdens innovative startups and small businesses reliant on cost-effective digital tools, while legacy industries coast free.
This strikes at the heart of free-market principles. Washington's tech sector, from Seattle's cloud giants to Spokane's emerging app developers, thrive on digital advertising's accessibility. A sole proprietor in Yakima optimizing a Facebook ad for farm-fresh produce? Taxed. A national conglomerate splashing cash on TV spots? Exempt. Rural operations, already hamstrung by connectivity gaps, face amplified costs that could stifle growth or force closures. Major industry groups echo this, slamming the law for inflating consumer prices and creating an uneven playing field. By favoring offline over online, the state isn't just raising revenue, it's picking winners and losers, echoing the very cronyism decried in other policy arenas.
The Internet Tax Freedom Act was designed to prevent exactly this, states hobbling e-commerce with discriminatory levies. Washington's gambit invites federal scrutiny and sets a perilous precedent. If successful, it could spawn copycat taxes nationwide, eroding the digital infrastructure that underpins modern commerce.
Policymakers in Olympia must reconsider this flawed path. True fiscal responsibility demands broad-based reforms, not selective taxes that punish progress. Tax credits for digital adoption, streamlined business licensing, or a pause on new levies could balance budgets without betraying innovation.
As Comcast's challenge unfolds, Washington stands at a crossroads, champion the entrepreneurs driving our economy, or double down on a regulatory and a taxation drag that favors the past over the future. The Evergreen State's spirit is one of bold invention, not bureaucratic bias. Let's repeal this tax before it destroys Washingtons competitive edge.
