Illinois to tax digital ads, social media

• Illinois Senate Bill 3019, the budget bill, establishes several new taxes: a digital advertising tax, social media tax, cryptocurrency tax, prediction market tax, and a tax on fantasy contests.
• The budget bill creates a 10-day sales tax holiday for clothing and schools supplies in August 2026. Eligible items will be subject to a reduced tax rate.
• SB 3019 also pauses for six months the annual fuel tax rate increase that was scheduled to take effect on July 1, 2026.

The new Illinois digital advertising services tax is much like the Utah targeted advertising tax enacted in May 2026. It will apply to “providers of targeted advertising services” in Illinois starting January 1, 2027.

The 10% tax applies to gross receipts derived from targeted advertising services provided in the state. Senate Bill 3019 defines targeted advertising services as “any programmatic written, oral, or graphic statement or representation conveyed through a digital interface or any other method of delivery.”

Examples of taxable targeted advertising services include:

• Banner advertising
• Interstitial advertising
• Search engine advertising
• “Other comparable advertising services that use personal information about the people to whom the ads are being served,” including, but not limited to:
  • Display advertising
  • Internet programmatic video advertising
  • Multichannel video programming distributor advertising
  • Advertising on social media
  • Native advertising
  • Incentivized or rewarded advertising

It’s worth highlighting the bill’s use of the term programmatic, defined as “capable of automating advertising services.” SB 3019 states that “programmatic targeted advertising services may be sold in real time by employing technology that uses computer-driven or software-driven workflow or machine learning algorithms to deliver advertisements to user-consumers based on user-advertiser-defined parameters, including precise user-consumer targeting data such as user-consumer:

• Geographic locations;
• Types of devices;
• Recent online search behaviors;
• Browsing history;
• Shopping history;
• Purchase history; and
• Biographical and other information compiled in databases.”

The digital ad tax doesn’t apply to ads on digital interfaces owned or operated by or on behalf of a news media entity, or to any providers with fewer than $1 million in annual cumulative gross receipts from targeted advertising services in Illinois.

Finally, SB 3019 prohibits local jurisdictions in the state from imposing a local targeted digital ad tax.

“The fact that digital advertising is taxed in a different manner than printed advertising simply due to the delivery method puts this tax in the bull’s-eye of the Commerce Clause,” observes Brian Smith, Senior Government Relations Director at Avalara.

Effective January 1, 2027, SB 3019 imposes graduated social media platform fees on social media platforms with over 100,000 Illinois users. The fees are based on the number of Illinois users from whom the platform collects data within a month, as follows:

• Between 100,000 and 500,000 Illinois users: $0.10 per user per month
• Between 500,000 and 1 million Illinois users: $40,000 plus $0.25 per user per month
• More than 1 million Illinois users: $165,000 plus $0.50 per user per month

The bill defines a social media platform as “a website or internet medium that

1. Permits a person to become a registered user, establish an account, or create a profile for the purpose of allowing users to create, share, and view user-generated content through that account or profile;
2. Enables one or more users to generate content that can be viewed by other users of the medium; and
3. Primarily serves as a medium for users to interact with content generated by other users of the medium.”

Social media platforms must pay the fees to the Secretary of State no later than the 14th day of the next calendar month. SB 3019 prohibits platforms from varying the cost of access, features, services, or in-app purchases to recoup the fee. A similar pass-through provision in Maryland’s digital advertising tax was struck down for violating the First Amendment.

Note that Chicago already imposes a Chicago Social Media Amusement Tax (the enviably named Chicago SMAT).

Smith expects litigation to come quickly because digital ad and social media taxes have drawn legal challenges elsewhere. “Illinois’ structure may face Commerce Clause, First Amendment, Internet Tax Freedom Act (ITFA), and discriminatory tax arguments. ITFA and First Amendment seem to be prima facie and coalitions have already begun litigation on this basis in other states.”

SB 3019 creates several other new taxes, including the following.

Digital assets tax. Illinois will tax digital assets like cryptocurrency starting January 1, 2027. The digital assets tax applies to any digital asset broker with a physical presence in Illinois or economic nexus with the state (i.e., at least $100,000 in gross receipts from digital asset business activity sales to Illinois customers). The tax rate is 0.2% on the value of digital assets exchanged, transferred, or stored in the state.

Prediction markets tax. The bill adds an exchange wager tax to the existing state tax on sports wagering. The first 5 million exchange wagers made during a fiscal year are subject to a transaction tax equal to 1.75% of the exchange wager. Subsequent exchange wagers are taxed at a rate of 3.5%.

Fantasy contests tax. A fantasy contest isn’t the same as sports wagering; it’s defined as “an online contest of skill between two or more participants with an entry fee” that meets certain specifications. The bill requires fantasy contest operators to be licensed and imposes a 15% tax on each licensee’s “adjusted gross fantasy contest receipts” starting July 1, 2026.

Kentucky became the first state to tax fantasy contests and prediction markets with the enactment of House Bill 757 in April 2026.

The budget bill also establishes a 2026 Illinois sales tax holiday for clothing and school supplies. This isn’t the first time Illinois has offered this type of sales tax holiday, but it hasn’t had one since 2022.

From August 7 through August 16, 2026, a reduced tax rate of 1.25% applies to the following items:

• Clothing with a retail seller price of less than $125
• School art supplies
• School computer supplies
• School instructional materials
• School supplies

See SB 3019 for more specifics.

Illinois typically increases the state motor fuel tax annually on July 1, and on July 1, 2026, it was scheduled to increase by 1.3 cents per gallon. SB 3019 pushes the rate increase back six months, to January 1, 2027.

Illinois isn’t the only state adopting significant tax policy changes in 2026. For more insights, attend the Avalara Tax Changes 2026 Midyear Update webinar on June 30, 2026.