Commentary

Maryland's Digital Ad Tax Will Set Bad Precedent For Publishing

Maryland this month may become the first U.S. state to impose a tax on digital advertising, a move that has negative implications for publishers.

Republican Gov. Larry Hogan last year vetoed the proposed tax, but the state's Democtratic-led legislature will seek to override the veto, State Senate President Bill Ferguson said in an interview last month.

The tax is mostly aimed at Big Tech companies like Google, Facebook and Amazon that sell digital ads to businesses that want to reach consumers in Maryland, and is likely to be challenged in court. Groups as varied as the Maryland-Delaware-D. C. Press Association and Maryland Chamber of Commerce oppose the measure as punitive.
According to the draft of House Bill 732, any company that sells at least $1 million in digital advertising in the state would be required to file a tax return, a requirement that's mostly a nuisance to publishers and doesn't incur the tax.
The levy kicks in for companies with yearly revenue at least $100 million worldwide, though it only applies to their digital ads seen by Maryland residents. The tax rate is on a sliding scale of 2.5% to 10%, based on the company's global revenue from any source -- not just digital ad sales.
That means companies like Google and Facebook, which make more than $15 billion a year in revenue worldwide, would pay the top rate of 10% on digital ads in Maryland. If they sell $100 million in digital ads, they'd be required to hand over $10 million to the state.
Unfortunately, the bill may apply to the websites of local newspapers owned by bigger media companies that make more than $100 million worldwide. For example, The Baltimore Sun is owned by Tribune Publishing, whose revenue easily exceeds that threshold. The Baltimore Business Journal is indirectly owned by Advance Publications, whose holdings include Condé Nast. Amid the steep declines in ad revenue seen by many publishers, the tax is especially punitive.
Proponents of the tax argue that it will protect small businesses, but it's not clear how raising the cost of digital advertising will help anyone. Media companies and Big Tech firms will pass on the costs of the tax to advertisers, and many small businesses will get priced out of the media market.
Maryland's proposed tax may also violate the Internet Tax Freedom Act that prevents federal, state and local governments from imposing internet-only taxes. In other words, digital ads can’t be taxed differently from ads in traditional media like newspapers and TV.
The tax is a bad idea and deserves to be contested in court.

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