Pritzker should veto legally questionable digital ad tax

Lawmakers approved a legally dubious new tax on targeted advertising services as part of the state budget. Gov. J.B. Pritzker should use his line-item veto power to reject the tax.

Because its revenue isn’t needed and it’s sure to be legally challenged, Gov. J.B. Pritzker should veto the “targeted advertising tax” before he signs a budget.

Under the tax, companies with more than $1 million in gross receipts from digital advertising services provided in Illinois would be charged 10% on those receipts. Lawmakers say the move could bring in $200 million to $800 million a year.

Opponents say the measure violates the federal Internet Tax Freedom Act and Illinois’ Uniformity Clause and that if upheld would be difficult or impossible to administer.

Another argument is that the threshold for the tax is far too low and could affect many small businesses, both advertising providers and businesses looking to advertise that would have to pay higher prices for those ads.

What should startle Illinoisans most is that while the tax would start Jan. 1, lawmakers say they didn’t need any of its projected revenue to balance the budget, and they expect the measure to be tied up in litigation.   

Maryland’s digital advertising tax has been in court since 2021. If Illinois enacted the fee and it didn’t hold up legally, the state could potentially have to refund the taxes, not to mention the legal bills it would incur.

Pritzker should avoid a costly battle altogether and strike this tax from the budget using his line-item veto authority, which he has previously exercised on budget bills.

The revenue portion of the budget package, Senate Bill 3019, was introduced just hours before it was approved through a mechanism known as “gut-and-replace,” a tactic that allows legislation to skirt rules that require advance notice and time to review legislation prior to lawmakers voting.

During this condensed process, lawmakers got their first chance to review all the tax hikes proposed in the budget and voted to approve the measure just hours later.

In total, the budget includes six new tax and fee hikes expected to generate $800 million to more than $1.4 billion in additional tax revenue for the state.

Lawmakers can’t be certain the digital ad tax is legal and what it could cost advertisers or advertising providers.

Illinois does not need more burdensome or legally risky revenue schemes. Pritzker can help avoid that by vetoing this tax.