A new 4.7% state tax on targeted digital advertising revenue takes effect Jan. 1, 2027, and the Utah Taxpayers Association is suing to block it.

Senate Bill 287, signed by Gov. Spencer Cox on March 25, imposes the tax on companies that earn at least $1 million from targeted advertising in Utah and at least $100 million worldwide. The company must also derive at least 50 percent of its gross receipts from targeted advertising to qualify, according to a tax alert from Ernst & Young.

The law defines targeted advertising as ads sold through automated bidding, based on individual data profiles, that let viewers click through to a purchase or more information. Newspaper, television, radio and billboard ads are not covered.

For Lehi-area businesses along the Silicon Slopes tech corridor, the tax raises a practical question: who pays? The levy targets large platforms, but the Tax Foundation, a national tax policy research group, says much of the economic burden would fall on Utah businesses that use those platforms to advertise to local customers.

"We're concerned that Utahns are going to be the ones paying this tax," Utah Taxpayers Association president Billy Hesterman told FOX 13 News on Aug. 4, when the group filed its lawsuit. "We know as much that companies said at the Capitol during the session that if this tax goes through, they're going to pass it on to Utah customers."

The association's suit alleges SB 287 violates the federal Internet Tax Freedom Act (ITFA), which bars states from taxing online activity that goes untaxed offline. The group also argues no Utah-based company meets the worldwide revenue threshold, meaning the tax falls entirely on out-of-state firms.

Sen. Mike McKell, R-Spanish Fork, who sponsored the bill, defended it to FOX 13 the same day. McKell said the law taxes Big Tech companies that mine user data and target children with advertising.

Revenue from the tax is earmarked for child literacy programs, youth sports, children's mental health services and adoption and foster care. A legislative fiscal analysis estimated the tax could generate as much as $15 million in its first year. The Institute on Taxation and Economic Policy projected $15.2 million in 2028 and $21.3 million in 2029.

Critics point to Maryland. A similar digital advertising tax there was struck down by the Maryland Tax Court in August after five years of legal battles. Maryland was ordered to refund the taxes it collected, with interest.

Jared Walczak, a senior fellow at the Tax Foundation, wrote in a Sept. 3 Deseret News opinion piece that Utah's law shares key vulnerabilities with Maryland's, including a worldwide revenue threshold he called unconstitutional under the Commerce Clause. Walczak warned that keeping the tax would lead to "a long, costly legal challenge the state is very likely to lose, with the state required to refund all collections with interest."

Dave Wade, who co-founded a Utah marketing agency in 2008, wrote in a separate Sept. 18 Deseret News opinion piece that the burden falls hardest on small operators. Wade argued that a higher advertising bill is a rounding error for a large corporation but can mean less money for payroll, equipment and reinvestment at a small business.

No court hearing date for the lawsuit has been announced. The tax takes effect Jan. 1, 2027.