What Washington and Maryland’s Tax Change on Digital Ad and Information Technology Services Means For Your Business

Even if your business isn’t based in Maryland or Washington State, new laws around digital advertising taxes may affect you now or in the near future. These changes represent a growing national trend toward taxing digital ad services and service-based technology industries, and it’s one every business and media company should be paying attention to.

How is Washington State Expanding What’s Included in Digital Automated Services Sales Taxes?

Beginning October 1, 2025, Washington State expanded its retail sales tax to cover a wide range of previously exempt services under an updated definition of Digital Automated Services (DAS). This broader category now includes digital advertising, along with other professional and technology-based services such as website development, IT support, software customization, and live presentations. These are just a few examples from a much longer list, marking one of the most significant efforts in the U.S. to extend sales tax to digital and technology service-based industries.

At the same time, Maryland continues to enforce its Digital Advertising Gross Revenues Tax (DAGR) on companies earning revenue from online ad placements. Together, these two laws signal a larger movement by states to capture digital ad tax revenue from modern digital services and technology-driven work.

What Services Are Now Considered “Digital Advertising” in Washington State?

Understanding what this digital advertising tax really means starts with knowing what services states are choosing to include. Washington’s definition of digital advertising is broad, and it may surprise you. Under the updated law, taxable digital advertising includes not only traditional ad activities but also services like:

• Layout, art direction, and graphic design
• Web campaign planning
• Website performance tracking and tracking analytics
• Search engine marketing and lead generation optimization
• Placement, referrals, and acquisition of advertising space
• Rendering advice concerning the best methods of advertising products or services
  
  

In other words, the tax applies to the entire ecosystem of digital marketing and creative work, not just online ads.

Beyond Advertising: Web, IT, and Software Services Now Taxable

The reach of Washington’s new digital ad sales tax doesn’t stop with advertising. It also applies to services that include:

• Information technology (IT) help desk services, network support, training, consulting, data processing, and data entry
• Custom website design, development, and support
• Live in-person or via the internet presentations, workshops, webinars, and courses
• Temporary staffing, contract and short-term assignments
• Access to and use of custom software 
• Customization of prewritten software

Website development now includes the design, development, and ongoing support of both new and existing websites. IT services encompass data entry, help desk support, network management, and software or hardware training. The law also extends to live presentations such as webinars or workshops where participants can interact in real time.

Some categories remain outside the new rule, including web hosting, domain registration, traditional print or broadcast advertising, and out-of-home placements like billboards or naming rights.

What About Maryland’s Digital Advertising Gross Revenues Tax (DAGR)?

Maryland was the first state to impose a tax on digital advertising revenue. Its Digital Advertising Gross Revenues Tax targets companies with more than $100 million in global digital advertising revenue and at least $1 million from Maryland users, applying rates between 2.5% and 10%.

Additionally, as of July 1, 2025, new legislation expanded the sales and use tax to include a broad range of data, information technology, and software publishing services. The updated law now covers computing infrastructure providers, data processing and web hosting, web search portals, software publishing, and computer systems design services as defined under NAICS sectors 518, 519, 5132, and 5415. These services are now subject to a 3.0% sales and use tax, marking another significant shift in how technology and information-based work are taxed.

While a recent federal court decision struck down Maryland’s ban on passing the digital ad tax through to customers, the underlying tax remains active and continues to face legal challenges.

For companies involved in programmatic advertising, search engine marketing, or social platform campaigns, this law highlights the need for ongoing monitoring and compliance planning.

How Could This Impact Your Business?

For digital agencies, marketing teams, and service providers, these laws represent a fundamental shift in how creative and technology work is taxed. Businesses that purchase these services should also pay attention, as they may now be responsible for paying additional sales tax on projects, subscriptions, or advertising work that were previously exempt.

Even if you’re not physically located in Maryland or Washington, your exposure could grow if you do business across state lines or serve clients in those states. Similar legislation in other states is likely to follow.

FAQs: Digital Advertising and IT Tax Trends

• Will these new taxes affect businesses outside of Washington and Maryland?
  Yes. These state laws often set national precedents. Even if you don’t operate directly in those states, working with clients who do could create tax exposure.
• What kinds of services are included?
  Digital ad placements, website design and development, IT services, SaaS subscriptions, webinars, and other digital professional services.
• When do these new rules take effect?
  Washington’s expanded tax begins October 1, 2025. Maryland’s DAGR tax is already active and evolving through ongoing legal proceedings.

Are there exemptions?
Yes. Traditional advertising (print, radio, TV), web hosting, domain registration, and billboard or naming-rights advertising remain exempt.

What Should Businesses Do To Prepare?

While much remains uncertain, especially as legal challenges play out, there are a few proactive steps every business can take:

1. Stay aware of what’s developing in your state and others.
2. Ask smart questions about how these rules might apply to your work or clients.
3. Understand your potential exposure so you can act quickly when new requirements take effect.

Need Help Understanding Your Exposure? Redpath is Here For You.

Our team is ready to help you review how these new taxes may affect your business and build a plan to stay compliant. With legal challenges and new state laws continuing to evolve, the best time to get ahead of potential changes is now. If you have questions or want to discuss your current situation, please reach out to your Redpath Client Manager or contact us to schedule a conversation.