January 22, 2020,

General Assembly Wants to Tax Digital Advertising

Last year, Kirwan Commission issued a report along with recommendations to improve public education in Maryland. Over the next four years, it is estimated that the cost of implementing these recommendations will be $4 billion.  The General Assembly is looking for ways to fund these recommendations including putting a new tax on the use of the internet, specifically: digital advertising, streaming music/video services and digital downloads.

At the start of the legislative session, Senate President Bill Ferguson and former Senate President Mike Miller made national headlines when they introduced Senate Bill 2, legislation that would establish a new digital advertising gross revenue tax. Maryland would become the first state in the U.S. to impose a targeted punitive tax on the gross revenue of digital advertising services. The digital advertising services that could be taxed include banner ads, search engine ads, Facebook ads and other forms of digital advertising

SB 2 would require companies that make more than $100 million annually on digital advertising overall, such as Facebook and Google, to pay taxes on revenue derived from ads that appear on the device of a user with an IP address in Maryland, or is “known or reasonably suspected to be using the device in the state,”.  It is uncertain how the State would obtain this information, but the bill is looking to smaller companies that make more than $1 million from digital ads in Maryland to file a return with the State to help facilitate the reporting.

While the bill is primarily set up to generate funding by targeting larger companies, it would place a significant burden on smaller companies to provide reports and in some cases, pay the tax.  There are also significant legal questions surrounding this proposal including the First Amendment, the Interstate Commerce Clause and the Internet Tax Freedom Act.  Meanwhile, members of the House of Delegates are preparing another bill that will specifically target streaming services and digital downloads.

The Chamber supports improving Maryland’s public education system but has great concerns about creating a new series of taxes that would be hard to enforce and impact residents and businesses that use the internet.  There will be an ongoing debate about how to fund the recommendations from the Kirwan Commission and there will be significant opposition to taxing the use of the internet for personal and business use.  Stay tuned as SB 2 is working its way through the Chamber’s policy and legislative committee process, we may need your help.