The advertising and marketing industry has been facing a radically reshaped state‑tax environment so far in 2026. What began as a patchwork of digital‑activity rules has accelerated into a full‑scale shift in how states define nexus, source revenue, and tax digital services. For agencies operating across markets — whether through remote talent, multistate clients, or digital‑first service models — these changes create both risk and opportunity.
Below, we highlight the key challenges and the strategic actions firms should take now to remain compliant, competitive, and future‑ready.
The digital advertising tax landscape, once limited to Maryland, is rapidly expanding. Several states are pushing legislation modeled after Maryland’s law , which is under ongoing legal scrutiny.
Maryland’s law (Digital Advertising Gross Revenue Tax), enacted in 2021, requires firms with gross global revenues of over $100 million to pay a tax on Maryland-sourced digital advertising revenue of over $1 million. The tax rate starts at 2.5% up to 10% on digital advertising revenue sourced to Maryland. While the $100 million global revenue threshold effect large companies, it has set a national precedent.
States considering or advancing similar taxes include Rhode Island (effective Jan 1, 2026), Connecticut, Indiana, Arkansas, and Massachusetts. These proposals could reshape how agencies price media buys, allocate budgets, and deliver ROI to clients.
Rhode Island’s law is currently in the proposal stage, but if enacted will take effect as of January 1, 2026. It requires firms with gross global revenues of over $1 billion to pay a tax on Rholde Island-sourced digital advertising revenue of over $1 million. The tax rate is 10% on digital advertising revenue sourced to Rhode Island. Like Maryland’s law, the tax cannot be passed though directly to its customers.
Same type as Maryland; Global gross revenues of great than $100 million and 2.5% to 10% tax rates.
Same type as Maryland; Global gross revenues to be determined and tax rates to be determined. Social Media tax proposal (HB 1517) would impose a 7% surcharge on social media advertising in Indiana of over $1 million. Note: Indiana “does” subject billboards, advertising signs, and printed advertising literature to sales and use tax.
S.B. 558 (2021) – Social Media Advertising Tax: 7% tax on gross revenue from social-media advertising in Arkansas. Proposed threshold would be revenue greater than $500,000 from Arkansas social-media advertising.
Massachusetts has a number of different proposals made in the last five years, which are too numerous to outline. The various proposals suggest a tax rate from 5% to 6.25% on various types of revenues and all with differing thresholds.
Complicating matters further, Maryland’s own restrictions on how companies pass along the tax were struck down in court, illustrating how unsettled — yet aggressive — this policy space has become.
Why it matters: Digital ad taxes may apply to activities such as programmatic buying, analytics, online referrals, and campaign planning, creating new cost structures and administrative burdens.
Remote work has permanently altered state‑tax nexus. Agencies with employees spread across states — even those in non‑client‑facing roles — may trigger corporate income tax, sales tax, or franchise tax obligations in multiple jurisdictions.
Meanwhile, states are increasingly questioning whether common digital activities exceed the protections of Public Law 86‑272, which limits a state’s ability to impose a net income tax on an out-of-state business, arguing that many web‑based client‑service functions should create taxable nexus.
Why it matters: Even agencies with no physical footprint in a state may now face filing obligations simply due to digital operations or distributed workforce patterns.
The One Big Beautiful Bill Act (OBBBA) introduced sweeping federal tax reforms, ranging from deductibility to credits to expensing rules. But states differ dramatically in how they conform to these provisions — some using rolling conformity, others locking in fixed‑date rules.
Rolling conformity – a state automatically follows the current Internal Revenue Code without needing separate legislation (however, state may “decouple from specific Federal laws, despite the rolling conformity).
Fixed date rules – a state adopts the Internal Revenue as of a specific date and needs separate legislation to pick up new Federal law changes.
Further uncertainty arises as state legislatures reconvene in 2026 and begin deciding whether to adopt, adapt, or reject various OBBBA components.
Why it matters:
Differences in conformity may result in separate sets of rules for:
Some states are pushing to tax digital advertising or services through their sales‑and‑use tax systems. Washington’s recent expansion of its sales tax to digital advertising services in 2025 specifically targets online ads — including online referrals, SEM, and campaign planning — reflecting a broader shift toward taxing digital service delivery models.
Why it matters: Agencies increasingly offer bundled digital strategy, analytics, and optimization services. These expansions may require recalculating sourcing rules, restructuring client billing, and monitoring multi‑state thresholds.
States are stepping up SALT enforcement, especially around apportionment and sourcing. At the same time, courts are increasingly scrutinizing — rather than deferring to — state tax agency interpretations.
Why it matters: Inconsistencies between state interpretation and statutory authority can create audit traps, increased documentation demands, and exposure for firms without strong compliance infrastructure.
These challenges don’t have to become roadblocks. Leading firms will leverage the moment to strengthen operations, enhance compliance, and reduce financial risk.
Agencies should implement recurring, structured reviews of:
Withum’s SALT guidance underscores the importance of proactive nexus studies, apportionment analysis, and multistate compliance planning.
Even where not yet enacted, digital advertising tax proposals warrant:
Preparing now equips firms to pivot quickly as new taxes emerge.
Evaluate whether your firm’s digital activities — chatbots, dashboards, self‑service portals, analytics tools — could be interpreted as unprotected under evolving state guidance.
Where appropriate, consider:
Agencies investing in analytics, AI, automation, software, or marketing technology may qualify for federal and state R&D incentives.
Additionally, Pass‑Through Entity Tax (PTET) regimes can offer significant tax‑savings opportunities for partners and S‑Corp shareholders — especially during periods of SALT‑cap uncertainty.
As states grow more aggressive, firms should:
Marketing‑finance personas emphasize the pressure to manage a growing volume of state tax updates and filings. Digital tax workflows improve efficiency, accuracy, and adaptability.
This includes:
2026 will continue to be a defining year for how state tax regimes approach digital commerce, remote work, and modern advertising models. Agencies that treat these developments merely as compliance burdens will fall behind. Those that approach them as strategic catalysts by investing in planning, modeling, technology, and proactive advisory relationships will gain a competitive edge.
For more information on this topic, please contact a member of our team.
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