Legal Challenges to WA Expanded Retail Sales Tax Inevitable, Say Experts

According to several legal experts and business owners, WA State's expanded retail sales tax is likely to be challenged in court.

  New expanded tax likely violates Federal law

 According to Geekwire, numerous companies are fuming over Gov. Ferguson signing the new budget, including Senate Bill 5814, which expands the retail sales tax to advertising agencies, IT service providers, software development firms and other related digital businesses.

Digital marketing leaders and ad agencies say it will not only hurt them, but also small businesses and non-profits, who may not be able to absorb the cost of the tax, which is at 10 percent on sales.

Also, several legal firms say the bill could run afoul of Federal law. Tax law experts McDermott Will & Emery say the bill could violate the Tax Freedom Act. They said, according to Geekwire:

“Taxing digital advertising services while expressly excluding offline media places the new law on a collision course with ITFA,a legal challenge is all but guaranteed.”

Get our free mobile app

WA state is one of the very few states to pass such broadly expanded the tax on digital ads. Maryland, says Geekwire, passed a similar law in 2021, but it is still being litigated.

Senator Noel Frame, a Democrat from Seattle who co-sponsored the bill, claims:

(the bill is a )  “good government update to make our tax code more appropriate for the 21st century.”

John Rubino, partner in the GreenRubino agency, rebuked that theory (Geekwire):

“What they’re doing is not helping the regressive tax system — it’s regressively hurting small business."

Many of these digital businesses say the tax will drive potential clients to out-of-state agencies who don't face such business obstacles.

READ More: Gov. Ferguson admits with budget  new taxes have "unintended consequences" but signs anyway