District of Columbia: Council considering sales tax on digital advertising

Listen to a brief overview of state tax developments this week, including the District of Columbia, or read full District of Columbia development below.

Detailed District of Columbia Development

The District of Columbia City Council will vote this week, for the second time, on a proposal to impose a three percent sales and use tax on advertising services and the sale of personal information. The proposal is included in the 2021 Budget Support Act, which passed on first reading about two weeks ago. Unlike similar bills proposed in other states (e.g., Maryland and New York), the District would tax physical advertising services, as well as digital advertising. “Advertising services” would be defined as the planning, creating, placing, or display of advertising in newspapers, magazines, billboards, broadcasting, and other media, including without limitation, the providing of concept, writing, graphic design, mechanical art, photography, and production supervision. “Digital advertising services” would be defined as services related to advertisements displayed on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, or other comparable advertising.  The Budget Support Act would also impose sales tax on the sale of “personal information,” which is defined as information or data that is derived from a person that identifies, relates to, describes, or is capable of being associated with, a specific person. The bill enumerates 15 specific types of information the sale of which would be taxable, including a person’s name; telephone number; and browser habits, consumer preferences, and any other data that can be attributed to a person and can be used for marketing or determining access or costs related to insurance, credit, or health care. One thing notably missing from the proposed language is any methodology for sourcing sales of advertising services or personal information. If enacted, the legislation would take effect on October 1, 2020.  In the District, legislation (unless emergency or temporary in nature) must be approved by the D.C. Council, signed by the mayor, and then subjected to a 30-day congressional review period before it is enacted. Mayor Bowser has not indicated she would sign the proposed legislation, but she has publicly opposed tax increases this year due to COVID-19. Please contact Sarika Bakshi at 713-286-8467 or Jeremy Jester at 713-286-8000 with questions.

This Week's Developments

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US