Maryland this month became 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 Democratic-led legislature overrode the veto
The tax is mostly aimed at big
technology companies like Google, Facebook and Amazon that sell digital ads to businesses that want to reach consumers in Maryland, and is now being challenged in court.
According to 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. Facebook's digital ad revenue rose 22% from a year earlier to $86 billion in 2020, while Google saw an 8.9% gain to $146.9 billion.
law applies to websites of local newspapers owned by bigger media companies that make more than $100 million worldwide.
Those publications would lose revenue if they have to
cut advertising prices to keep them in line with what market demand will allow. It will be difficult to pass on the cost of the tax if advertisers balk at the higher prices.
Smaller advertisers with limited media budgets aren't going to pony up more money to pay the tax, especially as they struggle to stay in business during a global pandemic. It may be hard for them
to pass the cost of digital ad taxes onto consumers, especially the 6.3% of Marylanders who are unemployed.
For publishers that already are struggling with declining ad
revenue, the digital ad tax is an extra burden.
While it's possible that smaller publishers that aren't required to impose the tax will benefit from offering lower ad prices
than those of bigger digital rivals, that's an iffy proposition. Google and Facebook make it easy for local businesses to run targeted self-serve campaigns, while their bigger advertisers will
continue to demand nationwide reach -- including in Maryland.
It's possible the state's digital tax won't survive a court challenge. The tax may violate the U.S.
Constitution's commerce clause and the Internet Tax Freedom Act, which prevents federal, state and local governments from imposing internet-only taxes.
are desperate for revenue sources to support programs like public schools, and Facebook and Google's surging ad sales make them fat targets. However, the state's digital ad tax is harmful to
publishers, advertisers and consumers, and should be deemed illegal.