On March 26, 2026, Utah Governor Spencer Cox signed Senate Bill 287 (“S.B. 287”) into law, establishing a new tax on certain businesses engaged in targeted advertising in the state. The tax, which will be levied beginning January 1, 2027, places Utah among a small but growing number of jurisdictions seeking to tax advertising activity.
Overview of the Targeted Advertising Tax
S.B. 287 imposes an annual tax on businesses that qualify as “targeted advertising entities,” defined as businesses that:
- Deliver targeted advertising to an audience or individual located in Utah;
- Generate gross receipts of (i) $1 million or more from targeted advertising in Utah; and (ii) $100 million or more from all targeted advertising, regardless of location; and
- Whose gross receipts for the taxable year, derived from all targeted advertising, regardless of location, constitute 50% or more of the company’s total gross receipts for the year.
“Targeted advertising” means the delivery, by any means, of an advertisement in exchange for consideration by (1) selling the advertising space through a bidding process; (2) obtaining or developing individualized data profiles to deliver the advertisement; and (3) allowing the individual to whom the advertisement is shown the ability to interface with the advertisement to access information or make a purchase, including through a link or quick response (QR) code.
The tax is calculated by multiplying the business entity’s total worldwide gross receipts from targeted advertising by a fraction, the numerator of which is the number of “impressions” delivered during the year to users located in Utah, and the denominator of which is the total number of “impressions” delivered during the year to users everywhere. “Impression” is defined as a single instance in which targeted advertising is delivered to an audience or individual, regardless of whether the audience or individual interacts with the advertisement.
Targeted advertising entities are required to file an annual electronic return with the Utah State Tax Commission that reports sufficient information to confirm taxability and the computation of the impression‑based apportionment factor.
Controversy and Potential Legal Challenges
The validity of Utah’s tax may be open to challenge, including under the Internet Tax Freedom Act (ITFA), which prohibits states from imposing taxes that discriminate against electronic commerce by taxing activities conducted over the Internet while not taxing comparable offline activities. Although Utah’s legislation does not use terms such as “digital,” “online,” or “internet” (likely in anticipation of an ITFA challenge), the “targeted advertising” definition is narrowly drafted to target online advertising business models. Additionally, the $100 million “targeted advertising” threshold appears to ensure that the regime would apply only to large online advertising providers.
Utah’s tax is the latest in an ongoing trend of state and local tax regimes targeting digital advertising and/or social media. In 2021, Maryland enacted the nation’s first digital advertising tax, imposing a graduated tax on gross receipts from digital advertisements displayed to users in the state. The validity of Maryland’s tax is currently being challenged in Maryland Tax Court on ITFA, Commerce Clause, and Due Process Clause grounds. In 2025, Washington expanded its sales tax base to include digital advertising (by imposing sales tax on “advertising” but expressly excluding various types of offline advertising), which also drew a legal challenge alleging that it violates ITFA (among other grounds). Earlier this year, Chicago enacted its “Social Media Amusement Tax” targeting social media businesses that collect data from more than 100,000 Chicago users annually, the validity of which has also been challenged under ITFA (among other grounds). Each of these cases remain pending, and the resolutions will shape the extent to which states may continue to target digital advertising and social media. Utah’s tax appears to be next in line for a legal challenge.
Contact the Authors: Lindsay LaCava and Dmitrii Gabrielov
