Existing tax regimes fail to tax digital services appropriately. Digital services based on extracting and monetizing user data-most notably digital advertising-are particularly problematic because tax regimes do not adequately account for the enormous value derived from user data.

Internationally, taxing jurisdictions have recognized these failures and commenced a controversial push toward new digital services taxes, or DSTs. Subnational taxing jurisdictions in the United States face the same issues and are searching for solutions.

This Article begins by examining the motivations and justifications for digital service taxation at both the international and subnational levels. These justifications center on antiquated tax regimes that do not sufficiently capture profit from new business models, particularly business models that rely on valuable data extracted from users in the taxing jurisdiction.

Next, this Article presents options for subnational digital service taxation. These options range from slightly modified existing tax regimes to novel approaches that may more appropriately tax digital services, specifically those services that extract and monetize user data. This Article also analyzes the constitutional, federal preemption, and sourcing challenges facing subnational digital services taxes.

This Article concludes by examining how subnational taxing jurisdictions may most effectively tax digital services. Although states have started to embrace digital advertising taxes modeled after European digital services taxes, these taxes are narrow and susceptible to challenge. Subnational jurisdictions have several better options, including publicly traded stock-based taxes and data mining taxes.

The IRS’s notice recognizing the deductibility of state passthrough entity taxes for federal personal income tax purposes has already spawned considerable interest regarding the issues raised by those levies for state tax purposes. Among these issues is the ability of PTE owners to claim a credit against their personal income tax liability in their state of residence for their distributive share of entity level taxes paid to other states where the income was earned. This article addresses the relevant issues in light of the underlying constitutional and policy concerns.