Business officials are pushing back against a digital advertising tax passed recently by the state House of Representatives.

House Bill 1678 would impose a new 5% gross receipts tax on digital advertising services tied to ads viewed or accessed in Pennsylvania. While the proposal has been framed as a tax on large technology companies, business groups are warning that the cost could ripple through Pennsylvania’s economy by increasing advertising costs for employers, small businesses, retailers, manufacturers, nonprofits, and other organizations that rely on digital tools.

“Pennsylvania’s small businesses are the backbone of our economy,” said Greg Moreland, state director of the NFIB Pennsylvania. “When Harrisburg imposes a new cost of doing business, it affects every community. Big tech may get the headline, but small businesses will get the bill. At 5% of gross receipts, this would be among the largest new tax burdens Pennsylvania has considered imposing on businesses in recent memory, and small businesses cannot afford to be collateral damage.”

The Pennsylvania Chamber of Business and Industry also warned that HB 1678 would undermine years of work to improve the state’s business tax climate.

“Pennsylvania has made meaningful progress in recent years toward improving its business tax climate, including the reduction of the Corporate Net Income Tax from 9.99% to 4.99%,” said Neal Lesher of the Pennsylvania Chamber of Business and Industry. “HB 1678 moves Pennsylvania in the wrong direction. Revenue derived from digital advertising purchased and used in Pennsylvania is already subject to Pennsylvania’s Corporate Net Income Tax. This bill would impose a new gross receipts tax on activities already taxed, creating a serious double-taxation concern. Pennsylvania should not spend years improving its business tax climate and then undercut that progress with a new tax on a growing part of the modern economy.”

House Bill 1678, was approved 139-63, with 35 Republicans voting in favor of the legislation. Rep. Kathy Rapp, R-Warren, voted against the bill. But, with 35 Republican votes in the state House of Representatives it’s possible the digital advertising tax could make it through the Senate.

Introduced by state Reps. Elizabeth Fiedler, D-Philadelphia.; Aerion Abney, D-Allegheny; and John Inglis, D-Allegheny, HB 1678 had 60 Democratic Party co-sponsors. It would update Pennsylvania’s existing gross receipts tax to include the sale of digital advertisements.

The majority of the tax, according to Fiedler, would be paid by technology companies that include Google, Meta, Amazon, TikTok, and Microsoft, which represent an almost $300 billion industry in the U.S. The legislation would require multinational corporations to pay their fair share without raising taxes on consumers or small businesses. The tax applies to the platform selling ad space on websites and apps, not the retailer paying to promote their product.

“Plain and simple, this legislation is about requiring big out-of-state corporations profiting off the people of Pennsylvania to pay their fair share in taxes, and to invest in the public services and programs we all count on,” said Fiedler, who is the prime sponsor. “Working people are struggling to pay their bills and are tired of hearing there is no money for their schools, healthcare and transportation. If multinational corporations making record-breaking profits want to do business in our state, then they should pay their fair share just like working people and small businesses do.”

The bill is designed to close a loophole in the way the state’s gross receipts taxes are collected. Fiedler said updating the gross receipts tax to include digital advertising could raise $500 million annually in new revenue for the state.

Fiedler referenced Maryland’s digital ad tax, and its first-year receipts of $170 million, when she introduced House Bill 1678 in April 2025. Since Fiedler’s bill was introduced, a federal court has struck down part of the Maryland law as unconstitutional because it blocked tech companies from telling customers about the tax. That prohibition violates the company’s rights to free speech, according to an Associated Press report from August 2025.

Maryland’s law says the companies must not only pay the tax, but avoid telling customers how it affects pricing, with no line items, surcharges or fees, said the appeals court Friday in siding with trade associations fighting the tax. Fiedler said her bill requires tech companies to pay the tax without passing the tax on to customers, but doesn’t appear to have limits on bills showing line items, surcharges or fees. There are also state-level challenges in the Maryland Tax Court that target the way Maryland’s tax is structured.Plaintiffs assert that the tax violates the federal Internet Tax Freedom Act (ITFA), the Commerce Clause, and due process principles, because it taxes global revenue instead of strictly local activity. That challenge has yet to be decided.