Maryland Passes Digital Ad Tax

Facebook, Google and other online companies could face new taxes in Maryland, if a bill passed this week is signed by the governor.

The measure, SB2, would impose new taxes on companies that glean than $100 million in digital ad revenue. Rates would vary from 2.5% to 10% of revenue attributable to Maryland, with the percentage tied to global revenue: Companies taking in between $100 million and $1 billion in digital ad revenue globally would be taxed at the 2.5% rate, while those taking in more than $15 billion would be assessed at the 10% rate.

The Association of National Advertisers, which opposes the measure, is asking Gov. Larry Hogan to veto it. If he does, state lawmakers can override the veto by a three-fifths vote. When the bill passed this week, the vote was 89-45 vote in the House, and 30-15 vote in the Senate.



But even if the measure is enacted, it appears likely to face a legal challenge.

The state's Department of Legislative Services outlined potential roadblocks to the law. Among others, opponents could argue that the measure is unconstitutional because it could result in higher taxes for large international companies (which would likely be taxed at the highest rate of 10%) than smaller in-state companies.

“This could lead to challenges that the tax violates the Commerce Clause of the U.S. Constitution, which prohibits state laws that interfere with interstate commerce,” the Department of Legislative Services writes.

The state agency also notes a Maryland appellate court ruled in the 1950s that a proposed tax on television, newspaper and radio ads would violate the First Amendment.

Santa Clara University law professor Eric Goldman questions the law's timing. He says lawmakers should be focused on encouraging online services, given that the COVID-19 outbreak is forcing people to move as much activity online as possible.

“The legislature needs to support that transition, to keep our society functioning,” he says.

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