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Maryland’s digital tax is bad policy, governor’s veto should stand| COMMENTARY

House members take a short break in the debate over final bills before adjourning the 2020 tonight in this March file photo.
House members take a short break in the debate over final bills before adjourning the 2020 tonight in this March file photo. (Amy Davis / Baltimore Sun)

Businesses across Maryland are struggling to keep their doors open, and Maryland’s General Assembly plans to return to Annapolis next week and make our lives even tougher. Lawmakers intend to override Gov. Larry Hogan’s veto of House Bill 732, which includes a first-in-the nation tax on digital advertising that amounts to a gut-punch to Maryland businesses and consumers at a time when they’re already financially vulnerable.

We urge the General Assembly to let the governor’s veto stand. The digital ad tax is bad policy and would be bad for Marylanders’ bottom lines at the worst possible time. Many businesses simply cannot absorb substantial new taxes (on top of other recent legislative mandates) without passing along some of those costs to consumers. Taxing digital ads will raise the cost of advertising services. Businesses rely on advertising to inform consumers about their goods and services. The tax will force them to reduce their advertising at a time when they need to reach customers more than ever — even if it’s just to assure the public they’re still open.

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Such taxes on advertising do not work. Where they have been tried, they have failed and their effects are sobering. Arizona, Iowa and Florida each passed broad advertising taxes years ago; each state later repealed its tax. Florida’s experience is instructive: Advertising there fell rapidly, by 12%, and the tax was extremely difficult to administer. The tax was repealed in a special session five months after it took effect. Since 1987, when Florida repealed its advertising sales tax, 40 states have considered and wisely rejected the idea.

Maryland would stand alone with such a tax, and it would slow economic growth. When the cost of advertising goes up, businesses spend less on advertising. When there is less advertising, consumer demand drops. Lower consumer demand reduces revenue, creates fewer jobs, slows the economy and reduces the tax’s usefulness as a revenue source. Advertising connects consumers to products and enables businesses to grow. Taxing advertising and advertising services chokes economic growth.

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And advertising has a huge, positive impact on Maryland’s economy. Advertising expenditures account for $101.5 billion of sales in Maryland. That represents nearly 15% of the $693.1 billion in the state’s total economic output, according to research that applied an economic model developed by Dr. Lawrence R. Klein, a Nobel Laureate in Economic Science. The research further shows that sales of products and services driven by advertising help support almost 400,000 jobs in Maryland.

COVID-19 has put nearly everyone in the state at a crisis point. A tax on advertising is a devastating betrayal to local media, local businesses and consumers who simply cannot afford to absorb these costs. Local newspapers and online news sites help support their news coverage through connecting local small businesses to advertising in print and digital forms. The only source of revenue for radio broadcasters is advertising, and it is the dominant source of revenue for local television news stations. An ad tax could ultimately lead to less local news, traffic, weather and sports — less of the trusted, local journalism we all depend on, especially at times like these. Most websites are free and advertising-supported; the digital ad tax will inevitably lead to less content. Advertising agencies across Maryland, many of them small businesses, will be at a severe disadvantage when competing with firms located outside the state — firms who aren’t saddled with these additional tax burdens.

Taxing advertising and advertising services doesn’t make good business or economic sense. The digital ad tax will hurt consumers and businesses and slow Maryland’s economic growth. Gov. Hogan knows that; it’s why he wisely vetoed HB 732 back in May. We understand and respect the Maryland General Assembly’s laudable goal of securing more funding to enhance our state’s education system. We believe, however, that the targeted, punitive and discriminatory tax on digital advertising is the wrong way to get there. We urge Maryland’s legislators to sustain the veto of HB 732 and give small businesses and consumers across the state a break.

Rebecca Snyder (rsnyder@mddcpress.com) is executive director the MDDC Press Association. Matthew McDermott (president@baltimoreadvertising.com) is president of the American Advertising Federation of Baltimore. Lisa Reynolds is executive director of the Maryland-DC-Delaware Broadcasters Association.

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