McDermott Will & Schulte and Holland & Hart filed a verified complaint on July 28, 2026, on behalf of the Utah Taxpayers Association to challenge Utah's new targeted advertising tax. The lawsuit asks the Third Judicial District Court in Salt Lake County to declare the tax unlawful and unconstitutional and to permanently enjoin the Utah State Tax Commission from enforcing it. Because the action challenges the constitutionality of a Utah statute, state law requires the case to be heard by a three-judge district court panel.
Enacted earlier this year as Senate Bill 287 and codified at Utah Code Ann. § 59-35-201, the tax applies specifically to receipts from targeted advertising. The law imposes a 4.7% tax on Utah gross receipts from targeted advertising for entities that meet three specific criteria: earning at least $1 million in annual gross receipts from targeted advertising in Utah, earning at least $100 million in annual gross receipts from targeted advertising worldwide, and having at least 50% of total worldwide gross receipts from targeted advertising. The tax is scheduled to apply to taxable periods beginning on or after January 1, 2027.
While the statute defines targeted advertising as delivery by any means, the cumulative definitions limit the tax to advertising delivered over the internet. Advertising delivered through non-internet channels, such as radio, television, newspapers, and billboards, is not subject to the tax.
The complaint filed by the Utah Taxpayers Association asserts four primary claims. First, it argues the tax is preempted by the federal Internet Tax Freedom Act (ITFA) because it applies to internet advertising while leaving comparable advertising through other channels untaxed. Second, it claims the tax is barred by ITFA's prohibition against taxes on internet access, as the definition of advertisement reaches receipts from internet access itself.
Third, the complaint asserts the tax discriminates against interstate commerce in violation of the Commerce Clause of the US Constitution. The filing states that no Utah-domiciled business satisfies the worldwide gross-receipts thresholds, meaning Utah businesses earning below those thresholds remain untaxed while larger out-of-state businesses are subject to the tax. Finally, the complaint argues that the worldwide gross-receipts thresholds violate due process because an entity's tax liability may depend on business activities occurring entirely outside of Utah with no connection to the state.
Utah is part of a broader national pattern of litigation regarding digital advertising taxes. Maryland's digital advertising gross receipts tax has prompted immediate litigation, and Washington has faced challenges regarding its sales tax expansion to advertising services. Illinois also recently enacted its own targeted advertising tax.
