Starting October 1, 2025, businesses in the digital advertising and data processing sectors will need to account for a new tax. The Washington State Legislature passed Senate Bill 5815 to modify the application of retail sales tax to include, among other services, advertising and data processing.
Questions remain around the implementation and legality of the law, but businesses engaged in these services should prepare for compliance now given the limited runway before the law takes effect.
Scope of the Tax
The law reclassifies digital advertising and data processing as a "retail transaction," subjecting a wide range of services to Washington's retail sales tax. Taxable advertising services now include activities related to creating, producing, and placing ads, including design, production supervision, media placement, campaign planning, search engine marketing, lead generation, and web traffic analysis. Taxable data processing services include any primarily automated service process customer-supplied data into usable information, such as payroll, claims, checks, surveys, images, and forms.
Several exemptions apply, including:
- Out-of-home advertising, including billboards, street furniture, transit advertising, and event signage.
- Web hosting services and domain name registration.
- Traditional media, including newspapers, printing, publishing, and broadcast radio or television.
Concerns Remain
Operational details are largely unclear at this moment. However, the Washington Department of Revenue plans to develop guidance before the law's effective date, which businesses should carefully review to design and revise their compliance programs. The Department identified several laws and regulations that may be impacted, including those applicable to advertising agencies and digital products.
The digital ad tax is not the first of its kind: In 2021, Maryland passed a similar law, which was struck down on constitutional grounds in August 2025. Whether Washington learns from the experience of its predecessor remains to be seen, but we expect legal challenges, nonetheless.
What's Next?
Businesses with advertising operations in Washington should:
- Conduct an internal audit to identify which marketing, digital services or vendor relationships may fall within the new taxable category.
- Examine existing client and vendor agreements to determine which party bears the cost of the new tax, and amend as necessary.
- Track forthcoming Department of Revenue guidance to understand definitions, reporting obligations, and recordkeeping requirements.
- Map out any additional data collection needed for compliance and align with existing privacy laws, including Washington's My Health My Data Act.
- Monitor possible legal challenges, which could delay enforcement.
Given the uncertainties, businesses in the advertising and digital services sectors should stay closely attuned to developments around this new tax.
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