For many businesses in 2026, digital advertising is one of the best ways to reach customers and grow their brands. As digital marketing grows, states are increasingly adopting new tax laws that could affect companies that advertise or sell advertising online.
Illinois recently made changes in the law that could affect companies involved in digital advertising. While the changes may not apply to every business, they are important for companies that buy, sell or provide certain advertising services.
Understanding Illinois’ new digital advertising tax
Illinois recently approved a new tax on certain targeted advertising services as part of its Fiscal Year 2027 budget. Beginning January 1, 2027, the law imposes a 10% tax on gross receipts earned from targeted advertising services provided in Illinois by businesses that exceed the state’s revenue threshold. Unlike an income tax, this tax is based on gross receipts, meaning it applies before business expenses are deducted.
The tax generally targets businesses that provide targeted advertising services using personal information to deliver ads to specific audiences. This can include advertising delivered through:
- Websites
- Social media platforms
- Search engines
- Other digital channel
While the law is aimed primarily at advertising providers rather than businesses simply purchasing advertisements, companies involved in digital marketing should understand how their advertising relationships may be affected. Because the legislation contains broad language, additional guidance may be needed to clarify exactly which businesses are covered and how certain transactions will be treated.
Businesses that sell digital advertising, operate advertising platforms or generate revenue from targeted advertising should begin reviewing their operations before the law takes effect. Evaluating advertising contracts, sourcing methods and tax compliance procedures now may help reduce future complications. As Illinois releases additional guidance, businesses may also need to update their internal processes to ensure they remain compliant with the new requirements.
Tax laws involving digital services continue to evolve, and even small changes can have significant financial consequences. Businesses with questions about how Illinois’ new digital advertising tax may apply to their operations should consider speaking with a qualified legal professional to better understand their obligations and prepare for future compliance.