• by Wendy Davis , April 28, 2025

Lawmakers in Washington state have approved a bill that would require ad agencies to collect sales tax on services such as creating and placing digital ads, analyzing their performance and planning online campaigns.

The measure (SB 5814) was passed late last week by a vote of 26-22 in the state Senate and 50-47 in the House.

If signed by Governor Bob Ferguson, the bill would require Washington agencies (and other businesses that assist advertisers) to collect sales tax likely ranging from 7.5% to 10.6% on “advertising services.”

The major ad industry groups and other organizations are asking Ferguson to veto the bill.

“This misguided proposal threatens Washington's business community and would harm consumers across the state,” the Association of National Advertisers, American Association of Advertising Agencies, American Advertising Federation and others, including the tech group NetChoice and cable lobbying organization NCTA-The Internet and Television Association said Monday in a letter to the governor.

The bill defines advertising services as “digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements” -- including art direction, graphic design, search engine marketing, lead generation optimization, web campaign planning, online placements and analytics.

The definition exempts services provided to newspapers, “printing or publishing,” and radio and television broadcasting, as well as services for out-of-home signage, like billboards.

Washington state sales tax is 6.5%, and cities and counties charge additional rates ranging from around 1% to 4.1%.

The industry groups opposing the bill write that it “would have far-reaching negative consequences for businesses, consumers, and the state’s economy as a whole, in addition to serious legal concerns.”

They add that the measure “will increase costs for local businesses that rely on advertising to reach their customers, resulting in higher prices on everyday goods and services for Washington families.”

“Washingtonians, like most Americans, are already navigating significant economic pressures including the lingering effects of runaway inflation,” the organizations write. “Washington business owners and entrepreneurs face extreme headwinds -- the last thing they need is a tax on their efforts to tell consumers about the important goods and services they offer.”

The groups also say that if enacted, the bill will likely face legal challenges for several reasons, including that it may violate the Internet Tax Freedom Act by taxing online digital advertising, but not traditional advertising. That law prohibits states from imposing discriminatory taxes on online transactions.