By Liz Nass
Gongwer News Service
A digital advertising tax meant to support the state’s Medicaid program was part of Gov. Gretchen Whitmer’s budget proposal, but opponents say it lacks specifics and won’t hold up in court.
The governor’s proposal, released Wednesday, would add a new 4.7% excise tax on digital advertising based on revenue from Michigan viewers. There would be exceptions for broadcast and news media.
The tax is forecasted to bring in $282 million in the 2026-27 fiscal year and go to the Medicaid Benefits Trust Fund.
This is not the first time this tax has been introduced, Whitmer floated a digital advertising tax as a new revenue option for roads last year. The proposal floated Wednesday, however, is different from a previous version.
HB 4142, sponsored by Rep. Alabas Farhat, D-Dearborn, was first introduced in February 2025 to create a tax on digital advertisements. The legislation would have taxed annual gross revenue from digital advertising services for individuals making at least $100 million from advertising. The system in the bill is tiered, starting at a 2.5% tax for companies with at least $100 million, up to 10% for those making above $15 billion on the price of each ad.
The Mackinac Center for Public Policy has been critical of the tax system. James Hohman, director of fiscal policy for the center, wrote in an article opposing the legislation that the system set up “an unfair penalty” for one kind of advertiser compared to others.
While the new proposed tax does not have a tiered system, that only clears up one issue with the policy for Hohman.
Hohman told Gongwer News Service the change only addresses one of the legal questions surrounding the policy, but not the other stronger questions of the federal prohibition on treating internet businesses separate from other businesses on tax policy.
Maryland has been in a legal battle for a similar tax since 2021. . Washington also enacted a digital advertising tax in 2025 and has been sued by Comcast.
Legal battles could be antithetical to the purpose of funding Medicaid for Michigan, Randy Gross, senior director of the legislative affairs and associate general counsel for the Michigan Chamber of Commerce said. He argued if the tax were enacted – and Republicans have balked at the new revenue options – the funds would be tied up in litigation.
However, the overall issue for Gross is the lack of details, leaving the tax up to broad interpretation.
It seems like anyone who purchases digital advertising may have to cover the cost without extra guardrails on the policy, even the exception of news seeming vague, Gross said.
Another issue with the tax, Hohman said, is the idea that the state seems to want to just “tax the unpopular,” whether “it's smokers, papers, gamblers, people who throw trash away, or digital advertisers.”
“Last year, they tried to make the claim that the digital advertisers really need to pay their fair share for the roads,” Hohman said. “That seemed inappropriate, because it's not like digital advertisers are going over the pavement.”
Gross also worried about the benchmark of creating taxes for an activity that is unrelated to the other.
The tax would not just affect big advertisers either, who Hohman believes the tax is targeting, but also small businesses needing effective ways to spread the word across the statewide market.
Before the tax could reach Michigan courts though, Hohman simply doubts it will get through the House. Republicans, who control the chamber, rejected the tax increase last year and blasted the digital tax and others proposed by Whitmer’s budget.
Hohman said there isn’t the same sort of “ultimatum” like the roads deal to come to an easy agreement on a tax hike. Last year, the Legislature did pass a tax increase on marijuana as part of a road funding deal. He said making Medicaid numbers work could come with fungibility elsewhere within the state budget.
Instead, Gross said the Legislature may have to look at efficiencies and where to cut rather than taking their first swipes at business every time.
“I'm not envious of the position that policymakers have to be at to come to those positions, but always going to we're going to tax something in the business community and make things more expensive and make it more uncompetitive for Michigan businesses and consumers doesn't seem to be the solution,” Gross said.
Gross said the tax, if implemented, could actually generate more than $282 million because of how many advertisers it would affect.
The governor’s office declined to comment and referred questions to the State Budget Office on where the forecast stemmed from and who the tax was intended to target. The State Budget Office referred to the Department of Treasury.
Ron Leix, spokesperson for the Department of Treasury, said there is nothing in current law “that would provide a precise tax base,” but that the base used in revenue projections was an estimate of national online advertising revenues.
The largest sellers of digital advertising make up 75% of the market, according to Leix, and applying the 4.7% rate would produce the $282 million per year estimate.
Gongwer News Service
A digital advertising tax meant to support the state’s Medicaid program was part of Gov. Gretchen Whitmer’s budget proposal, but opponents say it lacks specifics and won’t hold up in court.
The governor’s proposal, released Wednesday, would add a new 4.7% excise tax on digital advertising based on revenue from Michigan viewers. There would be exceptions for broadcast and news media.
The tax is forecasted to bring in $282 million in the 2026-27 fiscal year and go to the Medicaid Benefits Trust Fund.
This is not the first time this tax has been introduced, Whitmer floated a digital advertising tax as a new revenue option for roads last year. The proposal floated Wednesday, however, is different from a previous version.
HB 4142, sponsored by Rep. Alabas Farhat, D-Dearborn, was first introduced in February 2025 to create a tax on digital advertisements. The legislation would have taxed annual gross revenue from digital advertising services for individuals making at least $100 million from advertising. The system in the bill is tiered, starting at a 2.5% tax for companies with at least $100 million, up to 10% for those making above $15 billion on the price of each ad.
The Mackinac Center for Public Policy has been critical of the tax system. James Hohman, director of fiscal policy for the center, wrote in an article opposing the legislation that the system set up “an unfair penalty” for one kind of advertiser compared to others.
While the new proposed tax does not have a tiered system, that only clears up one issue with the policy for Hohman.
Hohman told Gongwer News Service the change only addresses one of the legal questions surrounding the policy, but not the other stronger questions of the federal prohibition on treating internet businesses separate from other businesses on tax policy.
Maryland has been in a legal battle for a similar tax since 2021. . Washington also enacted a digital advertising tax in 2025 and has been sued by Comcast.
Legal battles could be antithetical to the purpose of funding Medicaid for Michigan, Randy Gross, senior director of the legislative affairs and associate general counsel for the Michigan Chamber of Commerce said. He argued if the tax were enacted – and Republicans have balked at the new revenue options – the funds would be tied up in litigation.
However, the overall issue for Gross is the lack of details, leaving the tax up to broad interpretation.
It seems like anyone who purchases digital advertising may have to cover the cost without extra guardrails on the policy, even the exception of news seeming vague, Gross said.
Another issue with the tax, Hohman said, is the idea that the state seems to want to just “tax the unpopular,” whether “it's smokers, papers, gamblers, people who throw trash away, or digital advertisers.”
“Last year, they tried to make the claim that the digital advertisers really need to pay their fair share for the roads,” Hohman said. “That seemed inappropriate, because it's not like digital advertisers are going over the pavement.”
Gross also worried about the benchmark of creating taxes for an activity that is unrelated to the other.
The tax would not just affect big advertisers either, who Hohman believes the tax is targeting, but also small businesses needing effective ways to spread the word across the statewide market.
Before the tax could reach Michigan courts though, Hohman simply doubts it will get through the House. Republicans, who control the chamber, rejected the tax increase last year and blasted the digital tax and others proposed by Whitmer’s budget.
Hohman said there isn’t the same sort of “ultimatum” like the roads deal to come to an easy agreement on a tax hike. Last year, the Legislature did pass a tax increase on marijuana as part of a road funding deal. He said making Medicaid numbers work could come with fungibility elsewhere within the state budget.
Instead, Gross said the Legislature may have to look at efficiencies and where to cut rather than taking their first swipes at business every time.
“I'm not envious of the position that policymakers have to be at to come to those positions, but always going to we're going to tax something in the business community and make things more expensive and make it more uncompetitive for Michigan businesses and consumers doesn't seem to be the solution,” Gross said.
Gross said the tax, if implemented, could actually generate more than $282 million because of how many advertisers it would affect.
The governor’s office declined to comment and referred questions to the State Budget Office on where the forecast stemmed from and who the tax was intended to target. The State Budget Office referred to the Department of Treasury.
Ron Leix, spokesperson for the Department of Treasury, said there is nothing in current law “that would provide a precise tax base,” but that the base used in revenue projections was an estimate of national online advertising revenues.
The largest sellers of digital advertising make up 75% of the market, according to Leix, and applying the 4.7% rate would produce the $282 million per year estimate.
––––––––––––––––––––
Subscribe to the Legal News!
https://legalnews.com/Home/Subscription
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available
