In the early hours of June 1st, the Illinois legislature passed Senate Bill 3019 (“SB3019”) as part of its 2027 fiscal year budget bill, with major implications for online advertisers and social media companies. The bill is expected to officially become law without modification. Key changes to come for Illinois taxpayers include:
Targeted Advertising Services Tax
Beginning January 1, 2027, a 10% gross receipts tax will be imposed on providers of “targeted advertising services,” echoing similar legislation recently enacted in Utah (summarized here) and Maryland’s infamous digital advertising tax (summarized here). The Illinois “Targeted Advertising Services Tax” (or “TAST”) will broadly capture online advertisements “conveyed through a digital interface or any other method of delivery, including, but not limited to, banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services that use personal information about the people to whom the ads are being served.” Limited exceptions apply, including advertising services appearing on “digital interfaces owned or operated by” a “news media entity,” meaning “an entity engaged primarily in the business of newsgathering, reporting, or publishing articles about new, current events, culture, or other matters of public interest.” Also exempt are advertising services provided to the federal government, its agencies, and other entities and organizations exempt from use tax under federal law.
A “provider” becomes taxable in Illinois when “cumulative gross receipts from targeted advertising services provided in this State during the previous 12-month period exceed $1,000,000.” In making this determination, all “business entities that are part of a controlled group of corporations as defined in Section 1563(a) of the Internal Revenue Code shall be treated as a single entity ….” Taxable advertising service receipts are sourced based on the location of each Illinois “user-consumer” to whom targeted advertisements are conveyed. Providers must determine the “user-consumer” location “using the totality of the user-consumer contact information within the provider’s possession or control ….” A “rebuttable presumption” is created where a user-consumer’s “contact information associated with a device or account on record with or available to a provider indicates an Illinois home address, an Illinois mailing address, or an Illinois internet protocol address or other user-consumer data showing ‘place of primary use’ in Illinois ….”
Providers who are subject to the TAST must register with the Illinois Department of Revenue and apply for a “certificate of registration.” Once registered, the provider must file a monthly TAST electronic return with payment of tax due. Penalties for noncompliance are exceedingly harsh. In addition to the standard civil penalties imposed under the Uniform Penalty and Interest Act, “[a]ny provider who fails to file a return, or who violates any other provision of this Act, or who fails to keep books and records as required by this Act … is guilty of a Class 3 felony.” We’re skeptical of the constitutionality of attempting to impose felony criminal charges under the law as currently drafted.
Enactment of the Targeted Advertising Services Tax Act squarely places Illinois among the most aggressive taxing jurisdictions in the county. Fortunately, the Act expressly restricts any county or municipal government from enacting a similar tax, containing exposure at the state-level. Compared to the Maryland and Utah advertising taxes, the Illinois iteration of this tax is unique for several reasons, including (but not limited to):
- The TAST lowers the threshold of applicability to $1 million of Illinois revenues and applies a flat rate, likely in an effort to avoid the discrimination against interstate / foreign commerce argument brought against the Maryland Digital Advertising Gross Revenues Tax (where the threshold was $100 million receipts from digital advertising worldwide, and the tax rate was keyed to worldwide revenue).
- The TAST applies to all advertising that fits the definition, not just “internet advertising,” in a likely attempt to avoid Internet Tax Freedom Act (“ITFA”) scrutiny. However, from a practical perspective, the definition of “targeted advertising” will only apply to Internet-based advertising, so ITFA concerns remain.
- Unlike the Maryland law, which included a prohibition on passing through the tax that got struck down by the federal Fourth Circuit Court of Appeals on First Amendment grounds (See Chamber of Commerce v. Lierman, 151 F.4th 530 (4th Cir. 2025)), and the Social Media Platform Fee (discussed below), there is no “pass-through prohibition” for the TAST.
- Illinois has a much larger population than Maryland and Utah, which means a much higher potential tax liability.
- No state has simultaneously adopted both a digital advertising tax and a social media tax that apply concurrently (see below).
For these reasons, and many more, the TAST will surely be subject to robust taxpayer challenge in the months ahead.
Social Media Platform Fee
Beginning January 1, 2027, a substantial Social Media Platform Fee (or “Fee”) will be imposed “on social media platforms based on the number of Illinois users from whom the social media platform collects data within a month.” A “social media platform” is a website or internet medium that (1) “permits a person to become a registered user, establish an account, or create a profile for the purpose of allowing users to create, share, and view user-generated content …”; (2) enables users to generate content that can be viewed by other users; and (3) “primarily serves as a medium for users to interact with content generated by other users …”
For platforms with more than one million Illinois users, the Fee is $165,000 per month, plus $0.50 per user above 1,000,000 per month, with monthly reporting and payment due shortly after each month-end. The Fee rate will increase each year in accordance with the applicable Consumer Price Index. If a taxpayer is deemed to have owed the Fee and not paid it timely, a 100% penalty will be imposed, in addition to any other penalties.
The statute prohibits platforms from passing the cost through by varying pricing or service features based on user location, and it includes enforcement mechanisms such as audits, penalties, and private rights of action for affected users. This “pass-through ban” is reminiscent of a similar ban contained in the Maryland Digital Advertising Gross Revenues Tax that was struck down in Lierman as violating the First Amendment of the U.S. Constitution. Unlike the Targeted Advertising Services Tax (described above), the legislation for the Social Media Platform Fee does not define a “user located in Illinois” and provides no guidance on how to determine users’ location. And unlike the Chicago Social Media Amusement Tax (summarized here), the Fee legislation doesn’t explicitly exclude internet search providers, cloud computing services, and other industries that most would not consider “social media.”
One of the more unique features of the Social Media Platform Fee is its placement within the Business Corporations Act of 1983, along with delegation of administrative authority over the Fee to the Illinois Secretary of State instead of the Department of Revenue (which administers nearly all state-level taxes with the exception of the franchise tax). While the amended law provides the Secretary with investigative and audit powers, no real practical insight currently exists into how this “Fee” will be administered. If the Secretary’s administration of the franchise tax is any indication, there will be numerous compliance challenges in what is sure to a be a very rocky road ahead.
Marketplace Facilitator Rule for the Hotel Operators’ Occupation Tax
SB3019 added new marketplace facilitator obligations for the Hotel Operators’ Occupation Tax (HOOT). Current law imposes a dual remittance regime on both hotels and “re-renters” of hotel rooms (which includes online travel agencies and short-term rental sites), where each party is liable for HOOT on the amount of rent and other fees it retains from renters. Under the new law, starting July 1, 2026, Illinois will move to a single remittance regime where only “hotel marketplace facilitators” are liable for collecting and remitting HOOT on rent and other taxable fees made through a “hotel marketplace.” A “hotel marketplace facilitator” is one that, pursuant to agreements with unrelated hotels or short-term rental property owners, facilitates rentals by listing the rooms/properties for lease and processing payment from customers. HOOT collection obligations for hotel marketplace facilitators apply once the facilitator has more than $100,000 of facilitated Illinois hotel or short-term rental stays annually.
Digital Asset Tax
Beginning January 1, 2027, a new “cryptocurrency tax” is “imposed upon the privilege of receiving any digital asset business activity by a customer in this State at the rate of 0.2% of the value of the digital asset to which the digital asset business activity relates.” A “digital asset business activity” means “any single occurrence of exchanging, transferring, or storing a digital asset as part of a business or on behalf of a customer who has entered into an agreement with a business for the provision of those services.” The tax thus targets crypto and other digital currencies traded through brokers.
Governor Pritzker Seeks Pause on Data Center Tax Credit Agreements
Illinois has had a comprehensive and generous credits and incentives program for data centers since 2019. However, Governor J.B. Pritzker’s proposed fiscal 2027 budget called for a two-year moratorium on any new data center tax credits effective July 1, 2026. According to Pritzker, “while 37 projects have been constructed since inception, recent changes in the Illinois energy landscape require a more detailed review of the data center tax credit program.” Illinois Governor’s Office of Management and Budget, “Illinois State Budget: Fiscal Year 2027 Operating Budget,” at 72 (Feb. 18, 2026). The General Assembly did not take the Governor’s advice, and all of the existing Illinois data center tax credits and incentives remain in effect. For more on this topic, see How Tax Policy Shapes Data Center Growth in Texas and Illinois | Tax Notes.
However, despite the General Assembly’s refusal to pass a legislative pause on data center tax incentives, Governor Pritzker has instructed the relevant state agencies to “to pause the processing of data center agreements while we continue working with the General Assembly and stakeholders on a comprehensive framework that protects affordability, safeguards our natural resources, and ensures responsible growth across Illinois.”
The Illinois Independent Tax Tribunal Survives
Governor Pritzker proposed eliminating the Illinois Independent Tax Tribunal for budgetary reasons. While serious consideration was given to this proposal by some, the Tribunal was not eliminated and will remain in place for taxpayers to protest Illinois Department of Revenue audit adjustments and refund claim denials.
FY2027 is sure to bring new challenges for Illinois taxpayers, particularly those operating in the social media and digital advertising industries among others. If you have any questions regarding your Illinois tax obligations, please contact the authors.
Authors: Ted Bots, Drew Hemmings and Doug Wick
