Pennsylvania lawmakers are considering HB 1678, a proposal to extend the state’s existing telecom gross receipts tax to digital advertising services. Supporters frame it as a way to modernize the tax code and require large digital ad companies to pay more, but the measure would tax a business input and could raise costs for Pennsylvania businesses and consumers.
What HB 1678 would do
HB 1678 would apply Pennsylvania’s gross receipts tax framework to digital advertising services.
A gross receipts tax is imposed on a company’s total sales, without deductions for business expenses such as compensation, cost of goods sold, or overhead. Unlike a corporate income tax, it applies regardless of profitability.
The Pennsylvania House recently advanced HB 1678 after amending it to dedicate revenue toward property tax relief for seniors.
Why supporters point to Maryland
Supporters cite Maryland’s digital advertising tax as a model, saying it raised $170 million for public education.
Maryland did raise $170 million during the first two years its law was in effect, but that was below the original projection of $250 million per year. The $170 million figure also does not account for state compliance costs or ongoing litigation.
The tax would layer on top of existing taxes
The proposal is aimed at large digital platforms, but the businesses affected are already subject to Pennsylvania’s corporate net income tax.
Pennsylvania’s corporate net income tax applies to net income: corporate revenue after business costs. A gross receipts tax instead applies to total revenue, making it less tied to actual profit.
The source article also notes that:
- Many advertised products already produce taxable sales under Pennsylvania’s sales tax.
- Pennsylvania businesses using digital ads may generate income taxed through the personal income tax when profits pass through to owners or wages are paid to workers.
- The proposal is therefore not addressing a clear absence of taxation on digital advertising activity.
Local businesses and consumers could bear the cost
Although HB 1678 targets large platforms, the economic burden may fall partly on Pennsylvania advertisers and consumers.
Taxes on digital ads served in Pennsylvania would likely be embedded into the cost of advertising into the state. That could mean:
- Higher advertising costs for Pennsylvania businesses;
- Lower business profits;
- Higher prices for consumers;
- Reduced use of digital advertising by smaller firms.
Because digital advertising is a business input, the tax would be less visible than a retail sales tax and could be passed through indirectly.
Policy concerns
The proposal raises concerns around simplicity, transparency, and neutrality.
HB 1678 would require businesses to separately track and report digital advertising revenue, adding compliance burdens. Pennsylvania would also face added administration and enforcement costs.
The tax could also create tax pyramiding, where the same final product or service is effectively taxed multiple times through the production chain. This can especially affect low-margin firms.
The bill also exempts broadcast and news media entities while targeting businesses that rely on digital advertising. That could encourage companies to reduce advertising or shift toward other, less efficient marketing channels.
Litigation risks
Digital advertising taxes have already drawn legal challenges in other states.
Maryland has faced ongoing legal challenges since passing its digital ad tax in 2021. Washington added digital advertising to its sales tax base in 2025, and a lawsuit was filed months later. Illinois and Utah enacted laws targeting digital advertising during their 2026 legislative sessions, with litigation expected.
HB 1678 could face similar challenges.
One legal issue is the federal Internet Tax Freedom Act, which defines discriminatory taxes as levies imposed on internet-based goods and services that are not imposed on non-digital equivalents. A tax on digital advertising but not non-digital advertising could raise that concern.
The proposal may also raise Commerce Clause issues because it could burden interstate commerce by selectively taxing out-of-state businesses and creating sourcing challenges for digital activity.
Bottom line
Pennsylvania has recently pursued policies described in the source article as pro-growth, including phasing down the corporate net income tax and increasing the cap on net operating loss carryforwards.
HB 1678 would move in the opposite direction by creating a new tax on digital advertising. While the bill has been framed first as a budget measure and later as a source of property tax relief for seniors, its costs would likely be borne by Pennsylvania businesses and consumers through higher advertising costs, reduced profitability, and potentially higher prices.
The proposal would also add administrative complexity and expose Pennsylvania to litigation risk, including the possibility that the state could eventually have to refund taxes collected if legal challenges succeed.
Source article: taxfoundation.org
