A digital advertising tax proposal (LC 3237) has been drafted in Montana at the request of a Republican legislator. The bill, currently in draft form, would impose a new 10 percent tax on the annual gross revenues derived from digital advertising services in Montana on each person with worldwide annual gross revenue from digital advertising services of $25 million or more beginning January 1, 2022.

The bill defines a “digital advertising service” broadly as “an advertisement service on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” A “digital interface” would include “any type of software, including a website, part of a website, or application, that a user is able to access.”

Similar to Maryland’s digital advertising tax proposal, Montana’s proposal would use an undeveloped apportionment fraction to apportion the tax to Montana – the numerator of which is the annual gross revenue derived from digital advertising services in the state and the denominator of which is the annual gross revenue derived from digital advertising services in the United States.  The bill would permit the Montana Department of Revenue to adopt administrative rules to implement the tax, including how to source digital advertising service revenues to the state.

LC 3237 was drafted at the request of Republican Representative Jeremy Trebas.  The draft bill was delivered to Rep. Trebas on February 8 and must be introduced within two legislative days. Montana will now join several other states considering a tax on digital advertising including, Connecticut, Maryland, and New York.

If the bill is enacted, legal challenges will follow. The tax likely violates federal and constitutional law, including the Permanent Internet Tax Freedom Act and the Commerce Clause of the United States Constitution. The Eversheds Sutherland SALT team will continue to follow this proposal and provide updates.