Md. Legislature Overrides Governor’s Digital Ad Tax Veto, Approves First-of-its-Kind Tax in U.S.

On Thursday, the Maryland House of Delegates voted 88-32 and on Friday the Maryland Senate followed the House’s lead and voted to override Governor Larry Hogan’s veto of HB0732, which seeks to create a tax on the gross revenue of certain digital advertising services from companies like Google, Facebook, and Amazon. Thus, the Maryland legislature approved the first-of-its-kind tax in the United States

The digital advertising gross revenues tax would be “imposed on annual gross revenues of a person derived from digital advertising services in the State.” The bill states that digital advertising services include “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” The bill would impose tax rates of 2.5%, 5%, 7.5%, and 10% depending on the amount of a person’s annual gross revenues. A person needs to have at least $1 million in annual gross revenues from digital advertising services in the state to file a tax return. The money from the tax will contribute to the Blueprint for Maryland’s Future Fund, which provides school funding. Accordingly, it is estimated that the bill will generate as much as $250 million in revenue in the first year and will likely face legal challenges.

Legislative notes indicate that proponents of the bill assert that “many digital companies are undertaxed or are not paying their fair share of taxes.” Thus, this bill could create a tax that “could be considered a type of tax on corporate profits in the digital economy.” Meanwhile, opponents of the bill claim that it potentially conflicts with existing law, such as the Internet Tax Freedom Act. Additionally, because the tax will assess global revenue “it may lead to large multinational businesses having a higher tax burden in Maryland than Maryland-only providers. This could lead to challenges that the tax violates the Commerce Clause of the U.S. Constitution.”

This approval demonstrates a change in the United States following the lead of various European countries that tax the tech giants. Maryland’s move may propel other states to take similar tax initiatives. This also comes as the government is looking at tech giants’ increasing power, including economic power, particularly through the antitrust lawsuits against Google and Facebook.