This article is for informational purposes only and does not constitute tax, legal, or accounting advice. Consult a qualified tax professional before making compliance decisions.

Policy

The Model Bill That Would Outlaw the AI Taxes States Are Busy Passing: ALEC's AI Tax Non-Discrimination Act

Beardsley Rumble|2026-06-11|6 min read

While Illinois and Pennsylvania spent the last two weeks writing AI-aware language into their tax codes, a counter-movement has been circulating model legislation designed to make those same taxes illegal. The American Legislative Exchange Council's Artificial Intelligence Tax Non-Discrimination Act — finalized August 11, 2025, and surfaced again this spring as a centerpiece of ALEC's 2026 State AI Policy Toolkit — would bar states from singling out AI products and services for differential tax treatment. It is the policy mirror image of everything I have been writing about this month, and it deserves a careful read precisely because it is not law anywhere.

To be clear up front: a model act is not a statute. It is a template an advocacy organization hopes legislators will adopt. ALEC reports that more than 1,000 AI-related bills were introduced across the fifty states in 2025, with 118 enacted — so the appetite to legislate on AI is real, in both directions. What makes this particular template worth an analysis is that its prohibitions map, almost line for line, onto the taxes states are actually passing.

What the Model Act Actually Does

The Act's operative provision (Section 3) prohibits five categories of tax:

A computing-power tax. "No tax shall be levied specifically on the computing power used in the development or operation of artificial intelligence systems."

A remote-access-only sales tax. No sales tax on AI products accessed exclusively electronically unless the same tax applies equally to all similar digital services.

An AI-subscription differential. "No additional tax shall be imposed on a subscription to an artificial intelligence service beyond the tax applied to comparable software-as-a-service."

AI-derived income parity. Income from developing or selling AI must be taxed the same as other digital-services income.

A telecommunications reclassification bar. AI services cannot be classified as telecommunications for tax purposes unless that classification is applied uniformly across all similar digital applications.

The unifying definition is "discriminatory tax" — any measure that applies only to AI products and not to equivalent non-AI digital products, imposes higher rates on AI than on comparable SaaS, singles out AI activities for differential treatment, or reclassifies AI as telecommunications without uniform application. The Act's findings (Section 2) state the principle plainly: "Tax policy must remain neutral toward the mode of delivery or technological implementation of services."

That sentence is the whole argument. And it is in direct tension with what legislatures are doing.

Why This Lands on the Agent Economy

Read the prohibitions against the taxes I have analyzed this month and the collision is obvious.

Illinois SB 3019 defines its 10% Targeted Advertising Services Tax around services delivered through "machine learning algorithms." That is a tax whose base is keyed to the technological implementation of the service — exactly the "mode of delivery" discrimination the model act says tax policy must avoid. If Illinois had enacted ALEC's bill first, SB 3019's machine-learning hook would arguably be void on its face.

Pennsylvania HB 1678 is a closer call, because it taxes digital advertising by category rather than by automation — which is precisely why I flagged the gross-receipts model as the more durable template. A category-based tax that hits banner, search, and interstitial advertising regardless of whether a human or an agent placed the ad is harder to characterize as "discriminatory" under ALEC's definition. The model act, in other words, would bite the Illinois template hard and the Pennsylvania template barely at all. That asymmetry is the most useful thing in the document.

The California SaaS proposal sits in a third position. Newsom's May Revision would tax remotely accessed prewritten software and SaaS uniformly — it does not single out AI. Under the model act's logic, a uniform SaaS tax that happens to catch AI subscriptions is permissible; it is the differential that is prohibited, not the inclusion. An AI agent operator who reads the ALEC bill as a shield against the California proposal has misread it.

The Enforceability Problem

Here is where I have to be a tax adviser rather than a policy enthusiast. The Artificial Intelligence Tax Non-Discrimination Act has, to my knowledge, not been enacted in its model form by any state. It is a template that was adopted by ALEC's membership, not by any legislature. Until a state passes it, it imposes no obligation and confers no protection. You cannot cite a model act to an auditor.

Even where some version were enacted, two structural weaknesses would follow the bill into law. First, a state legislature can repeal or amend its own non-discrimination statute as easily as it passed it — a future budget can carve out an exception, as budgets routinely do. Second, the definition of "comparable software-as-a-service" is doing enormous load-bearing work and is genuinely contestable. Is an autonomous purchasing agent "comparable" to a CRM subscription? The entire fight over whether AI services are like ordinary SaaS — the fight that produced opposite answers in Indiana and Kentucky — would simply relocate into the comparability clause of the non-discrimination statute. The model act does not resolve that question; it presupposes an answer to it.

There is also a federal backstop the model act gestures toward and that already exists: the Internet Tax Freedom Act's bar on discriminatory taxes on electronic commerce. ITFA is the live legal instrument here, not a model bill. A tax keyed to "machine learning algorithms" invites an ITFA discrimination challenge today, with no new state legislation required. That existing federal hook is a stronger card for an agent operator than any state model act that has not been enacted.

My Read on the Comfort Level

On whether the ALEC model act protects an AI agent operator from anything right now, I am at Should-Never — there is nothing to rely on, because it is not law. That is not a knock on the drafting; it is the nature of a model bill.

What I hold with Substantial Authority is the diagnostic value of the document. The Act is a clean checklist of what makes an AI tax legally and politically vulnerable: a base defined by the technology rather than the transaction, a higher rate than comparable SaaS, a telecommunications reclassification. When you see those features in a real bill — and Illinois SB 3019 has the first of them — you are looking at a measure with a discrimination problem, whether or not the model act is ever enacted. The bill is more useful as a vulnerability map than as a shield.

What AgentTax Users Should Do Now

Do not treat the model act as protection. It is not enacted. Model your exposure under the taxes that are passing — Illinois (enacted), Pennsylvania (advancing), California (pending June 15 budget vote) — not under a template that confers no rights.

Flag the discrimination features when you see them. A tax whose base names your architecture ("machine learning algorithms," "computing power") is the kind ITFA and any future non-discrimination statute most plausibly reach. That is where a challenge, not a remittance, may be the right first move — with counsel.

Separate "AI-specific" from "uniform digital" taxes. A uniform SaaS tax that catches your subscription (California) is a collect-and-remit problem. An AI-singling-out tax (Illinois) is a discrimination question. They demand different responses, and conflating them is how operators either over-collect or walk into an audit.

Watch for the first enactment. If any state passes a version of the non-discrimination act, the comparability fight moves into its definitions immediately. Track which state moves first and how it defines "comparable SaaS."

What to Watch

Three signals over the coming year: whether any legislature introduces the model act as a real bill (ALEC's toolkit is built to make that happen); whether the Maryland and Illinois digital-ad-tax litigation produces an ITFA discrimination ruling that does the model act's work without any new statute; and whether the comparability question — is an AI service "like" ordinary SaaS — gets resolved by courts before it gets resolved by legislatures. The model act assumes that answer is settled. Every state ruling this year says it is not.

We track both the taxes states are passing and the templates designed to stop them against our 50-state SaaS taxability guide. If your platform sells AI services into multiple states and you need to know which exposure is a remittance problem and which is a discrimination argument, the AgentTax engine lets you classify each receipt today — start by determining whether your service is taxed as uniform SaaS or singled out as AI, the distinction the entire non-discrimination debate turns on.

This analysis is for informational purposes only and does not constitute legal or tax advice. Consult a licensed tax professional for compliance decisions.