Please note that log in for BLAW products will be unavailable for scheduled maintenance on Sunday, February 5th from approximately 4 AM to 5 AM EST.
Bloomberg Tax
Free Newsletter Sign Up
Bloomberg Tax
Advanced Search Go
Free Newsletter Sign Up

States, Multistate Tax Commission Point to Role of Digital Economy in State Tax Policy

Sept. 8, 2021, 8:00 AM

Recent state legislative activity in New Jersey, Massachusetts, and Maryland demonstrates the importance the digital economy will play in the future of state tax policy. Maryland enacted the first—and legally controversial—tax on digital advertising several months ago. Since then, New Jersey and Massachusetts have taken more cautious approaches to understanding how to tax the digital economy most effectively. This article discusses the recently enacted New Jersey Budget Act and a Massachusetts legislative proposal—each of which requires a report to be submitted to its respective legislative body for consideration before the enactment of next fiscal year’s budget.


On June 29, 2021, Gov. Phil Murphy (D) signed into law the budget for the fiscal year ending June 30, 2022 (New Jersey Budget Act), New Jersey. In addition to enacting the state’s largest budget ($46.4 billion), the New Jersey Budget Act appropriates funds for the New Jersey Division of Taxation (DOT) to study the relationship between tax laws and the digital economy. This portion of the New Jersey Budget Act is somewhat similar to the petition Massachusetts House Representatives Richard Haggerty and Natalie Blais, both Democrats, introduced less than two months earlier, House Bill 2928 (Massachusetts proposal). While the New Jersey Budget Act and Massachusetts proposal share a “let’s look before we leap” approach to taxing digital advertising, they differ in other ways. This brief article highlights the salient similarities and distinctions between the New Jersey Budget Act and the Massachusetts proposal.

New Jersey Budget Act

The applicable New Jersey Budget Act provision is a brief paragraph, which requires the DOT to submit a report to the state treasurer and Joint Budget Oversight Committee not later than March 31, 2022, that:

“examin[es] the [s]tate’s tax laws and their relation to the digital economy [and] quantify[es] how various taxes have expanded or reduced the economic activity, and [s]tate revenue, that those laws were intended to capture when first enacted, and particular forms of economic activity that are untaxed or undertaxed that have grown more significant in the modern economy … along with its recommendations for changes in law to address gaps in current law[.] New Jersey Budget Act at 197.”

Similarities and Differences Between the New Jersey Budget Act and Massachusetts Proposal

As described below, the New Jersey Budget Act is more encompassing than the Massachusetts proposal. It addresses the entire digital economy—the Massachusetts proposal only addresses digital advertising—but it does not require the DOT to provide the level of detail the Massachusetts special commission is required to provide. Another key difference is that the New Jersey Budget Act does not require the DOT to seek outside input, while the Massachusetts proposal requires its report to be drafted by a multidisciplinary special commission that is to meet from time to time.

Despite the disparate breadth of the directives, both the New Jersey Budget Act and the Massachusetts proposal may be read to allow (but not mandate) their drafters to compile similar levels of detail from similarly diverse perspectives. Moreover, to achieve the respective purposes of each report and for the drafters to meaningfully fulfill their respective responsibilities, each report will necessarily drill down into detail on a broad array of issues.

Report Breadth

The New Jersey Budget Act paints with broad strokes by asking the DOT to examine “the [s]tate’s tax laws and their relation to the digital economy.” Importantly, this direction is to be distinguished from the Massachusetts proposal, which limits the special commission’s task to “conduct[ing] a comprehensive study relative to generating revenue from digital advertising that is displayed inside … Massachusetts by companies that generate over $100 million a year in global revenue.”

The New Jersey Budget Act suggests that the New Jersey Legislature may be considering the enactment of taxes on broader aspects of the digital economy—not just digital advertising—whereas at least some in the Massachusetts Legislature may only consider targeting digital advertising—i.e., taking a route similar to Maryland. Maryland HB 732, enacted Feb. 11, 2021.

Report Detail

The New Jersey Budget Act does not provide any guidance to the DOT as to the level of detail it expects in the DOT report. In contrast, the Massachusetts proposal requires the special commission to return a significant amount of detail, including:

  • the total amount of taxes currently paid by the digital advertisers that generate more than $100 million in annual revenue;
  • the changes in revenue that the commonwealth should expect if it were to adopt any of the special commission’s recommendations;
  • recommendations for changes in laws to achieve an equitable and adequate system of taxation;
  • tax rates necessary to ensure economic competitiveness with peer and competitor states to fund investment in public infrastructure and programming, and that would not discourage robust private-sector investment in capital equipment and the state’s workforce; and
  • suggested use of revenue derived from the enactment of a digital advertising tax; and the best practices of other states.

It should be noted that items (1) and (2) would provide the Legislature with quantitative data to analyze in deciding whether to tax digital advertising. Items (3), (4), and (5) are more policy-oriented inquiries. Finally, item (6) indicates that Massachusetts would prefer to sidestep, if possible, the seemingly insurmountable legal hurdles the Maryland digital advertising tax faces.

Report Contributors

The Massachusetts proposal seeks broader input than the New Jersey Budget Act. The New Jersey Budget Act only directs the DOT to provide the report. That said, there is nothing in the New Jersey Budget Act that would appear to preclude the DOT from seeking extra division input. On the other hand, the Massachusetts proposal expressly requires the formation of a multidisciplined commission that:

“shall consist of the House and Senate chairs of the Joint Committee on Revenue or the chairs’ designees, who shall serve as co-chairs of the commission; secretary of administration and finance or the secretary’s designee; 2 people who shall be appointed by the president of the Senate, 2 people who shall be appointed by the Speaker of the House; the minority leader of the House of Representatives or a designee; the minority leader of the Senate or a designee; the commissioner of the Department of Revenue or the commissioner’s designee[;] and 2 members to be appointed by the governor who shall have expertise in economics or tax policy.”

Nonetheless, by requiring a broad range of input, the Massachusetts proposal seeks a substantially broader perspective.

Report Timing

The New Jersey Budget Act requires the DOT to submit its report not later than March 31, 2022, and the Massachusetts proposal requires the special commission to submit its report not later than Feb. 15, 2022. This timing suggests that both legislative bodies would like to study their respective reports while negotiating next fiscal year’s budgets.

And speaking of timing, the recent introduction of Massachusetts H.B. 4042, which would impose a 6.25% tax on a seller’s unapportioned gross revenue from the sale of online digital advertising services “received on a user’s device having an IP address located within [Massachusetts],” causes one to question whether the Massachusetts proposal will remain just that—a proposal—never to come to fruition.


Many states saw significant budget surpluses this past fiscal year. The uncertainty of federal stimulus payments and the rising costs of education, pension, infrastructure and other funding needs may prove the current fiscal year to be less rosy. For that reason, states will certainly be watching revenue collections closely as they near next budget season. The New Jersey Budget Act, Massachusetts proposal, Maryland digital advertising tax, and similar proposals across the country demonstrate that states view the digital economy as a potentially bountiful future harvest.

Therefore, now is the time for legislators, taxpayers, business owners and all stakeholders—the Massachusetts special commission is a good model if it were to be formed—to begin having more and more robust conversations about the role the digital economy will play in state tax policy. Another good role model is the Multistate Tax Commission, which has proposed a working group to study state taxation of the digital economy. If approved, the working group would prepare a white paper addressing how the digital economy works and how states address thorny issues, including uniformity of definitions, bundling, sourcing, multiple points of use, and the appropriate tax base. As with the Massachusetts proposal, the Multistate Tax Commission appears poised to seek broad input from taxpaying stakeholders.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Michael J. Semes is Professor of Practice in the Graduate Tax Program at the Charles Widger School of Law at Villanova University and Of Counsel at BakerHostetler.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at