Utah spent years building a reputation as a place where technology companies, entrepreneurs and small businesses could grow. Silicon Slopes became proof that a business-friendly state could compete with traditional technology hubs.
Now a new tech tax puts that hard-earned reputation at risk. Beginning in January, Utah’s Targeted Advertising Tax will single out some of the most innovative tools in modern commerce for an additional charge.
The timing could hardly be worse. In August, Maryland’s first-in-the-nation digital advertising tax was struck down after five years of legal battles. Maryland was ordered to refund the taxes at issue with interest.
Utah lawmakers say they have avoided Maryland’s mistakes. As a Utah business owner who has worked in advertising for more than 20 years, I am not convinced. I started selling Yellow Pages ads in 2005 to help pay my way through Weber State University. Advertising has changed dramatically since then and even the Yellow Pages are online now.
Twenty years ago, a local company might buy a newspaper ad, radio spot or Yellow Pages listing and hope the right people noticed. Today, businesses can reach people likely to need what they sell, control how much they spend and see whether an advertisement produces results. That became the Utah marketing agency I co-founded in 2008.
The technology is remarkable. When someone searches for a service or visits a website, businesses can compete in an automated auction that takes place in a fraction of a second.
Consider a Utah parent whose child just joined a wrestling team. After looking online for wrestling shoes, that parent might see an offer from a nearby retailer with the right sizes in stock. One click can provide the price, directions and a way to buy. The parent saves time and may save money, and the retailer finds a customer.
Utah’s tax singles out the technology behind that connection for a 4.7% tax on revenue before expenses. As the law emphasizes, this charge is “in addition to all other taxes” businesses already pay.
Our state is placing an extra tax on some of the most useful forms of modern advertising while generally leaving newspaper, television, radio and billboard ads alone.
The Utah Taxpayers Association has challenged the law in court, alleging that no Utah-based company meets its worldwide revenue thresholds. According to the lawsuit, Utah companies conducting similar business would remain outside the tax while larger interstate companies pay it. That same concern about unequal treatment helped get Maryland’s tax into legal trouble.
Utah also calculates how much a company owes based on the share of its ads shown in the state. Yet the viewer’s location may have little to do with where the underlying business occurred. An ad shown to a traveler changing planes in Salt Lake City could count toward the tax even if the advertiser and the company selling the ad are both elsewhere.
Research from the Interactive Advertising Bureau and others consistently shows that people value relevant advertising and the free or lower-cost online services it supports, even as many want clearer information about personalization and data use.
As a business owner, father and high school coach, I take concerns about privacy, data security and children’s safety seriously. Addressing them requires transparency, responsible business practices and meaningful protections. This tax provides none of those things. It sets no privacy or security standards and places no restrictions on harmful content.
The revenue may support literacy, youth recreation, mental health, adoption, foster care services and other worthy programs. The law also allows public education about the “effects of targeted advertising.” But it says nothing about explaining the value Utahns receive from relevant advertising or what they could lose if it becomes more expensive or less effective.
Companies paying the tax could absorb it, pass it along through higher advertising prices, reduce what they offer here or scale back their business in Utah. But the effects would not be equal. A higher advertising bill may be a rounding error for a large corporation. For a small business, it can mean less money for payroll, software, equipment, inventory or reinvestment.
The effects would spread to local agencies, publishers, creators and thousands of Utah businesses that depend on advertising. Consumers could face higher prices, fewer useful offers and more online services moving behind subscription fees.
Utah should repeal the Targeted Advertising Tax before it leads to years of litigation, higher costs for businesses like mine and less choice and convenience for our customers. Utah became a technology leader by welcoming investment and innovation. It can build on that success by addressing genuine online concerns directly, keeping digital tools affordable and giving businesses room to grow.