Small businesses are paying the price for Washington’s digital ad tax | Opinion

Washington State says it wants to tax Big Tech. Instead, it has imposed a 10.35% surcharge on every small business that relies on digital advertising to reach local customers.

When the Legislature passed its new digital advertising tax (ESSB 5814), the message was that Google, Meta and Amazon would finally pay their fair share. But as of Oct. 1, these companies are not paying a dime. They simply updated their billing software, added the tax as a separate line item on every invoice and passed the entire cost directly to us — the advertisers.

The tech giants aren’t paying this tariff. Washington small businesses are. This pass-through cost is frustrating on its own. But the real inequity is structural: the law is built in a way that specifically burdens local businesses while allowing global companies to avoid most or all of the tax.

The tax applies only to ads viewed inside Washington. This creates a loophole known as the “Multiple Points of Use” exemption. A large software or biotech company in Seattle can file a certificate showing its digital ads primarily target customers in California, Texas or Europe. Because those ads are “exported,” that company’s effective tax rate falls close to zero.

But a local business has no such escape hatch. A retailer, plumber or bakery in Tacoma cannot export its advertising. Our customers are our neighbors. Since our ads are viewed in-state, we pay the full surcharge. The result is backward policy: the state is effectively rewarding companies that sell out of state while penalizing those that serve their own communities.

Another inconsistency deepens the imbalance. Traditional media — broadcast television, radio, newspapers and billboards — remains outside the scope of this new sales tax. If a major corporation buys a freeway billboard or an evening TV spot, no surcharge applies.

For many small businesses, those channels are impractical today. We don’t buy digital ads because they are cheaper — we buy them because they are more efficient. Search and social platforms let us reach the customers who are actually looking for what we sell. By taxing digital tools while exempting broad offline media, the state is punishing the very efficiency that allows small businesses to survive against big-box and out-of-state competitors.

The tax’s legal footing is also unsteady. Federal law — the Internet Tax Freedom Act — bars states from imposing discriminatory taxes on electronic commerce while exempting comparable offline activity. Courts in other states have already raised concerns about similar digital-only tax structures and Washington’s carve-out rests on the same shaky ground.

This is not an attack on the Legislature’s motives; lawmakers were searching for revenue to fund essential services.

But good intentions do not fix bad economics.

For many small firms, customer acquisition costs just jumped by more than 10% overnight — in a state where labor, insurance and occupancy costs are already climbing. That is a hit that stifles hiring, expansion and competitiveness.

Lawmakers should revisit this in the 2026 session. If the goal is to tax the profits of global tech platforms, the state must find a way to do so without creating a punitive levy on local shops and service providers. This was sold as a tax on tech giants. In practice, it functions as a tariff on Washington small businesses — the very companies least able to absorb it.

Robert Kaplan is the owner of Black Pine Hot Tubs and Swim Spas, a small business serving Tacoma and the South Sound.