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This Jan. 17, 2017, file photo shows a Facebook logo at Station F in Paris. Facebook has decided not to limit how digital political ads can be targeted to specific groups of people, as its main digital-ad rival Google did in November 2019 to fight misinformation. Now states face the question of whether such ads can be taxed.
This Jan. 17, 2017, file photo shows a Facebook logo at Station F in Paris. Facebook has decided not to limit how digital political ads can be targeted to specific groups of people, as its main digital-ad rival Google did in November 2019 to fight misinformation. Now states face the question of whether such ads can be taxed. (Thibault Camus/AP)

The recent article, “Maryland lawmakers to consider tax on digital ads to pay for education" (Jan 10), discussed a proposed tax on digital advertising to pay for ambitious education reforms. As noted in the article, there’s no estimate yet of how much money that tax would generate. It’s also unclear what “revenue derived from digital advertising” really means. The bill fails to make a distinction between a platform that serves ads, a publisher that sells them, a company that buys them, or an agency that creates and manages them.

As written, Senate Bill 2 could create a competitive disadvantage for many local companies from publishers to retailers to advertising agencies. Many companies in our region fall within the $100 million gross global revenue threshold. This bill could require them to pay the digital advertising tax on top of the state income — a double-tax their out-of-state competitors don’t pay. Similar efforts in other states have all been struck down because of their net-negative economic impact or because federal courts found them to be unconstitutional.

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As detailed in a letter the American Advertising Federation of Baltimore sent to Maryland State Senate President Bill Ferguson and members of the Budget and Taxation Committee earlier this month, the proposed plan runs afoul of federal law (“Proposed digital advertising tax bad for business,” Jan. 21). It would result in a prohibited discriminatory tax on electronic commerce in violation of Congress’s Permanent Internet Tax Freedom Act as well as the Commerce Clause and the Equal Protection Clause of the U.S. Constitution. Beyond its dubious legal footing, the plan would have a negative economic impact.

Marylanders will pay higher prices for goods and services they purchase from the companies advertising on the digital interface as costs are passed down to consumers. Arizona, Iowa and Florida each passed broad advertising taxes years ago; each later repealed the tax because it hurt their local economy and was impossible to administer. Digital advertising is more complex than a banner ad or paid search marketing on Google. This bill oversimplifies it. The state comptroller’s office would have to hire a small army of new staff, accountants and lawyers to administer and manage this amorphous tax. This bill will place an exceptional burden on state resources, and will most likely lead to prolonged and costly litigation with the likes of Facebook and Google’s legal teams.

The bill is attempting to snipe global media behemoths for quick cash. Instead, it waves a bazooka in their general direction, leaving room for severe collateral damage to our business throughout the region. On behalf of Maryland businesses and the region’s advertising, production and design community, we urge the Maryland Senate to dismiss S.B. 2.

Matt McDermott, Baltimore

The writer is president of the American Advertising Federation of Baltimore.

Add your voice: Respond to this piece or other Sun content by submitting your own letter.

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