Maryland will become first state to tax digital ads

Maryland soon will become the first state in the nation to implement a tax on digital advertising.

The Democrat-controlled state Senate voted 29-17 on Friday to override Republican Gov. Larry Hogan’s veto of the legislation.

Under the new law, certain companies will be required to pay a 2.5% to 10% tax on revenue from digital advertising services in the state, based on the company’s global annual gross revenue.

The tax will apply to companies that make at least $100 million in global revenue and at least $1 million in digital ad revenue in Maryland.

The Maryland Department of Legislative Services projects the tax could bring in up to $250 million, which will be used to help fund a multibillion-dollar public education overhaul plan. The Senate voted earlier Friday to override the governor’s veto of the education legislation.

House Majority Leader Eric Luedtke, Montgomery County Democrat, sponsored the ad tax bill and told The Washington Times on Thursday that it is aimed at Big Tech companies. The House passed the measure in an 88-48 vote that day.

Mr. Luedtke and Senate President Bill Ferguson, Baltimore Democrat, cross-filed two bills last week that would add exemptions and restrictions to the tax. 

The measures would exempt select broadcast and news media organizations from the tax and ban companies from passing the cost of the tax on to customers through a separate fee, surcharge or line-item. Committee hearings on the proposals are scheduled for this month.

Opponents of the bill say companies could circumvent the proposed safeguards by raising their overall advertising costs. They also say the tax comes at a time when businesses are struggling because of the coronavirus pandemic and could drive them out of the state. 

Other states that have tried to adopt similar digital ad taxes have faced constitutional roadblocks. According to Forbes, the bill may violate the foreign commerce clause against enforcing a tax on international businesses, as well as First Amendment guarantees against targeting industry-specific media.

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