A tax on digital advertising will hurt Rhode Island small businesses and consumers
Rhode Island lawmakers have a choice when it comes to a proposed tax on digital advertising, which opponents say could hurt small businesses and consumers. (Photo by Janine L. Weisman/Rhode Island Current)
As a former South Dakota State senator, past president of the National Conference of State Legislators, and a Certified Public Accountant, I've seen firsthand how tax policies can either help or hurt a state's economy. The digital advertising tax that is being pushed in Rhode Island Gov. Dan McKee's proposed fiscal 2026 budget is a clear case of the latter — a misguided policy that threatens to harm every small business and consumer in the Ocean State.
Advertising isn't just about flashy billboards or catchy jingles; it's a cornerstone of economic activity. An independent study commissioned by the Association of National Advertisers shows that advertising expenditures generate a whopping $22.4 billion in economic activity in Rhode Island alone, supporting over 106,000 jobs. That's 15.5% of all jobs in the state.
Taxing digital ads opened Maryland up to litigation. McKee wants Rhode Island to do it anyway.
When you tax digital advertising, you're not just targeting faceless tech giants, you're hitting the local coffee shop trying to reach new customers, the family-run bookstore promoting a weekend sale, and the startup striving to make its mark. You might think you're hitting the big guy but you're really just stepping on the little guy.
As I noted in my testimony in front of the Senate Finance Committee, because of this tax, small businesses would face tough choices. That is not the fate that legislators should be rooting for when it comes to Rhode Island's small business community. Proponents of this tax argue it's aimed at billion-dollar corporations, but history tells a different story. In France, a similar digital advertising tax ended up passing 55% percent of its burden onto consumers, according to a Deloitte study.
Beyond the straight economic impact, this tax is a double whammy for businesses. Rhode Island companies already pay income tax, now they'd be taxed again just for advertising their products and services. This kind of double taxation doesn't just strain businesses —- it discourages them from growing, investing, and hiring. For a state in which business owners already face significant headwinds, this tax could be the final straw for many entrepreneurs.
You might think you're hitting the big guy but you're really just stepping on the little guy.
Let's not forget the legal minefield this tax creates. Maryland's attempt to implement a similar tax has been tied up in costly legal battles, draining taxpayer dollars with no end in sight. The proposed tax in Rhode Island could face similar challenges, potentially violating the First Amendment, the Dormant Commerce Clause, and federal laws like the Internet Tax Freedom Act. If the courts strike it down, Rhode Island could be on the hook to refund every cent collected, plus interest. With an already challenging fiscal situation on the horizon, that's a gamble the state can't afford to take.
Digital advertising has been a game-changer for small businesses, leveling the playing field and allowing them to reach audiences far beyond their local communities. Over the past decade, it's fueled growth and innovation, helping more than 100,000 small businesses in Rhode Island thrive. Taxing this critical tool doesn't just stifle growth —- it sends a message that Rhode Island isn't open for business.
A tax on digital advertising isn't just bad policy, it's a step backward.
Rhode Island lawmakers have a choice: they can pursue short-sighted revenue grabs that hurt the very people they're supposed to serve, or they can focus on fostering a business-friendly environment that encourages growth, innovation, and prosperity.
I urge lawmakers to reject this harmful tax and instead focus on policies that build a stronger, more competitive state.
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