Illinois has enacted a new tax on targeted advertising services as part of Senate Bill 3019, which was included in the state’s fiscal year 2027 budget legislation. Effective January 1, 2027, the law imposes a 10% tax on gross receipts from targeted advertising services delivered to users located in Illinois. Providers with more than $1 million in annual gross receipts are responsible for remitting the tax.
The tax applies broadly to “any programmatic written, oral, or graphic statement or representation conveyed through a digital interface or any other method of delivery.” As a result, the scope of the tax extends beyond traditional digital advertising and includes search engine ads, banner ads, interstitial video ads, social media advertisements, native content, and other digital advertising formats.
While the law includes exemptions for certain small businesses and news media organizations, many businesses involved in digital advertising should evaluate whether they have collection and compliance obligations beginning in 2027. The legislation is likely to draw attention from businesses operating in the digital economy as states continue exploring new approaches to taxing advertising and other digital activities. Similar concepts have been proposed or considered in other states, including Utah (Illinois Senate Bill 3019 (FY 2027 Budget Bill), effective January 1, 2027).
The new tax is already facing legal challenges. In a September 11 complaint, NetChoice filed suit against the State of Illinois, the Illinois Department of Revenue, and David Harris, in his official capacity as Director, in the Circuit Court of Cook County, Illinois, Chancery Division. The lawsuit challenges the targeted advertising tax created by S.B. 3019, arguing that the tax violates First Amendment free speech protections, discriminates against interstate commerce in violation of the Commerce Clause, and is preempted by the federal Internet Tax Freedom Act.
The Sales Tax Institute is tracking developments related to the Illinois targeted advertising tax and related litigation. For the latest updates, analysis, and court developments, visit Illinois Social Media User Tax and Digital Ad Tax Face Further Legal Challenges.