Illinois Enacts 10% Tax on Targeted Advertising Services

Illinois recently enacted a new Targeted Advertising Services Tax as part of its FY 2027 budget legislation. Beginning January 1, 2027, the law imposes a 10% tax on gross receipts derived from targeted advertising services provided in Illinois.

The statute applies to a "provider of targeted advertising services," which is generally defined as a person engaged in the business of providing targeted advertising services whose annual cumulative gross receipts from such services in Illinois exceed $1 million during the preceding 12-month period. The law defines "targeted advertising services" broadly to include advertising that uses personal information about the individuals to whom the advertising is served.

Notably, the definition is not limited to advertising delivered online. The statute covers advertising conveyed through a digital interface "or any other method of delivery." While it remains to be seen how Illinois interprets that language, the breadth of the definition may create uncertainty regarding the full scope of advertising activities that could be subject to the tax.

The legislation contains an exemption for "news media entities." The statute defines a news media entity as an organization engaged primarily in the business of newsgathering, reporting or publishing articles or commentary about news, current events, culture or other matters of public interest. The exemption does not extend to entities that are primarily aggregators or re-publishers of third-party content.

While the exemption may prove significant for some media and publishing businesses, its application to many modern media, streaming, audio, platform and digital advertising-supported businesses is not immediately clear. Determining whether a particular company qualifies for the exemption will likely require a detailed analysis of its business activities, content offerings, revenue streams and role in the advertising ecosystem. Companies should therefore avoid assuming that the exemption either clearly applies or does not apply until additional guidance is issued, and the statute is further analyzed.

A number of significant interpretive issues remain unresolved, including how Illinois will determine who qualifies as a "provider" of targeted advertising services, how the tax applies where multiple parties participate in the advertising transaction and whether future guidance will address advertising sold directly by publishers versus through advertising intermediaries and ad-tech platforms.

Because the tax is imposed on gross receipts rather than net income, companies with significant Illinois-related advertising revenue may wish to begin assessing potential exposure, reviewing their advertising products and targeting practices, and monitoring future guidance from the Illinois Department of Revenue.

We are continuing to review the legislation and would be happy to discuss how the new law may affect your business.