(The Center Square) – Pennsylvania lawmakers are weighing a new tax on digital advertising aimed at making the world’s largest technology companies pay more to the state, a proposal that is drawing scrutiny over its potential impact on smaller businesses and legal questions that have surfaced in other states.
Supporters of House Bill 1678 and its Senate companion, Senate Bill 1199, say the proposed 5% gross receipts tax would fall largely on companies like Google, Meta, Amazon, TikTok, and Microsoft. Revenue estimates vary, from about $329 million in fiscal year 2026-2027 to as much as $624 million in 2027.
Opponents counter that the House-passed bill contains no revenue threshold that limits the tax to large corporations – unlike Maryland’s law, which applies to companies with at least $100 million in global annual revenue. The Maryland Tax Court, however, ruled in August that the tax violated federal law and constitutional provisions. Maryland’s comptroller appealed those rulings Monday.
HB 1678, part of the “Tax Billionaires. Fund PA” package, passed the House 139-63 in June, and awaits consideration in the Senate Finance Committee – along with SB 1199.
HB 1678’s prime sponsor, Rep. Elizabeth Fiedler, D-Philadelphia, told The Center Square that the bills in each of the many states considering this type of legislation are different to meet local conditions, “which is certainly the case here in Pennsylvania.”
“Maryland’s tax court has no jurisdiction in other states. We’re still laser focused on moving HB1678,” Fiedler added.
She said Pennsylvania has a “particularly regressive tax structure,” with executives making record profits while working people struggle to make ends meet. “Our state desperately needs revenue to maintain funding for essential public services and deal with Trump’s cuts to programs like SNAP and Medicaid,” Fiedler said.
“This was always going to be a difficult fight because these billion-dollar Big Tech corporations have practically limitless resources,” she added. “They would rather spend millions on lawyers and legal fees than pay what they owe to our communities. As lawmakers, our job is to pass legislation that supports working people, and we can’t be deterred by these threats.”
Pennsylvania Republicans have raised concerns about the proposal’s potential to raise costs on small businesses and consumers, though 39 party members crossed party lines to support the final House vote.
The absence of a revenue threshold is among the issues raised by organizations that say, despite supporters’ focus on large technology companies, the tax could reach further, either directly or through higher advertising costs passed on to the Pennsylvania businesses that rely on digital platforms to reach customers.
Brendan Thomas, executive director of Internet for Growth, told The Center Square the proposal could affect small businesses on both sides of the digital advertising market.
Companies selling online advertising could be directly subject to the tax, while businesses purchasing digital ads could see higher prices. Thomas said increased costs to advertising providers would likely be passed along to small businesses and consumers.
Because the 5% tax applies to gross receipts rather than profits, he argued that even a small company struggling to break even could face a tax liability. “You could be a ski company in the Poconos,” Thomas said, “and sell an advertisement from a local ski upplier on your website…You’d be subject to this tax.”
He questioned the fairness of taxing digital advertising differently from comparable traditional services – an issue linked to the federal Internet Tax Freedom Act, which prohibits discriminatory taxes on electronic commerce. Low-cost digital advertising, Thomas said, has expanded opportunities for small businesses to reach customers, and he warned that additional costs could discourage innovation and make those tools less affordable.
Thomas also raised a potential Commerce Clause concern, arguing that targeting out-of-state technology companies could run afoul of constitutional restrictions on state taxation of interstate commerce.
Neal Lesher, vice president, government affairs at the Pennsylvania Chamber of Business and Industry, shares those concerns.
In a June memo provided to The Center Square, Lesher urged lawmakers to reject the proposal, arguing the tax would extend beyond “big tech,” and ultimately raise costs for Pennsylvania businesses, with small businesses bearing a disproportionate share. He also said it “violates basic principles of sound tax policy and will surely end up in costly litigation.”
Small businesses depend on digital advertising to find and attract new customers, Lesher said. He added that online digital advertising services provide cheap, targeted ads that allow small businesses to reach specific customers who are most likely to be interested in their products or services, allowing them to spend their limited funds efficiently.
“With businesses still struggling due to inflation and increased supply chain costs, now is exactly the wrong time to impose new taxes on a common business practice,” said Lesher.
