(The Center Square) – Global media and technology company Comcast has sued Washington state to block a new law that imposes a sales tax on digital advertising services.
The company argues that the law is discriminatory and violates the federal Internet Tax Freedom Act by not taxing all advertising equally.
The state Department of Revenue says the lawsuit, if successful, would negatively impact the state budget.
The cable giant filed a lawsuit in Thurston County Superior Court on Sept. 9, naming the state and the Department of Revenue as the main defendants, claiming that Engrossed Substitute Senate Bill 5814, which is set to take effect on Oct. 1, “defines ‘advertising services’ subject to the tax to include only certain advertising services.”
ESSB 5814 expands the state’s retail sales and use tax to include various services. Gov. Bob Ferguson signed it into law on May 20 as part of a broader budget package intended to fund public services like education, health care, and social programs.
Comcast claims the new law is discriminatory and violates the Internet Tax Freedom Act by exempting non-internet advertising services while taxing most internet-based advertising.
“Almost all forms of advertising conducted over the internet are subject to the tax, while most forms of advertising conducted off the internet are not subject to the tax,” the lawsuit states.
The new law defines “advertising services” as “digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements.” That includes art direction, graphic design, search engine marketing, lead generation optimization, web campaign planning, online placements and analytics.
“Striking the advertising services portion is roughly a $475 million decrease over the four-year budget period FY2026/29,” Department of Revenue spokesperson Beverly Crichfield emailed The Center Square.
She explained the department’s next steps.
“The agency has received the Comcast lawsuit and is reviewing it with our legal counsel. We expect to have interim guidance issued for Advertising Services in the next two weeks,” Crichfield said. “An interim guidance statement reflects the department’s current position on an issue where final guidance has not yet been published. The Advertising Services interim guidance will give taxpayers reporting instructions they can rely on while the department continues to review issues and adopts final interpretive guidance; it does not address the legal issues raised by the lawsuit.”
Major advertising industry groups oppose the new law, claiming it will increase costs for businesses and consumers and create an unfair distinction between digital and traditional advertising.
According to a July listening session and survey report on the law by the Department of Revenue, “Respondents were concerned with over-taxation and the impact on small businesses, sole proprietors, and rural and agricultural operations. Many expressed that this tax would negatively impact their business. Respondents also expressed frustration with Washington’s tax structure and past policy decisions as well as complexity and administrative burden.”
Comcast’s lawsuit asks the court to issue a declaratory judgment that the new tax law is unconstitutional.
