A coalition of businesses is gearing up for a fight in January over Maryland’s first-in-the-nation attempt to levy a tax on online advertising.
Maryland lawmakers passed the tax earlier this year, in hopes of drumming up money for education by taxing Big Tech. Republican Gov. Larry Hogan vetoed the tax, setting up a battle over whether the Democratic-led legislature will override the veto when its next legislative session starts in January.
A coalition calling itself Marylanders for Tax Fairness is starting a push against the tax two months before lawmakers will have to make their decision on the veto. The coalition will launch a website and ad campaign Tuesday.
The coalition’s members call the tax shortsighted and deeply flawed. And they say the costs will be passed on to Marylanders, as businesses charge higher prices to cover their increased cost of advertising.
“This is a bad time for a bad idea … Maryland entrepreneurs and small businesses are doing everything they can to survive the pandemic. The last thing they need is another tax and additional costs making it even harder than it already is,” said Doug Mayer, a coalition spokesman and former top adviser to Hogan.
The idea behind the tax was to hit big technology companies that place ads that follow people around as they browse websites and click through apps such as Google and Facebook.
The tax would apply to companies based on how much money they make from digital ads that Maryland consumers see, starting at 2.5% and going up to 10%. Only companies making $100 million globally from digital ads would have to pay the tax, and they’d pay based on how much of their ad revenue is derived from Maryland.
Most of the revenue would go to public schools. The tax has the potential of raising up to $250 million per year, according to a nonpartisan analysis.
“I just don’t see why Facebook and Google, who have tremendous impact on Maryland, should get away without having to pay the taxes that regular Marylanders would pay,” said Del. Eric Luedtke of Montgomery County, the House of Delegates Democratic majority leader who pushed to get the taxes approved in the pandemic-shortened legislative session.
But coalition members — and the governor — argue small businesses would bear the brunt of the cost.
Hogan, in a veto letter sent to legislative leaders, called the bill “misguided” and said it would raise costs on Marylanders at a time when many are struggling financially.
“With our state in the midst of a pandemic and economic crash, and just beginning on our road to recovery, it would be unconscionable to raise taxes and fees now,” Hogan wrote May 7. “To do so would further add to the very heavy burden that our citizens are already facing.”
Senate President Bill Ferguson, a Baltimore Democrat who conceived of the tax, said in a statement that the large companies should pay the tax themselves, and not pass it down the line.
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“This tax affects companies only making $100 million or more a year on the free exploitation of Marylanders' personal and private data,” Ferguson said. “We have, and will continue to stand side by side with small businesses to protect them from being taken advantage of by multinational corporations.”
Some have raised questions about whether the tax would withstand legal challenges. They’ve cited the federal Internet Tax Freedom Act, which bans discriminatory taxes on e-commerce; the federal Commerce Clause, which gives Congress the authority to regulate interstate commerce, and the First Amendment.
Maryland Attorney General Brian Frosh wrote an 11-page letter to the governor in April that concludes that while there is “some risk” a court might find parts of the bill unconstitutional, “those provisions are not clearly unconstitutional.”
Maryland is the first state to have approved a digital ad tax. The District of Columbia Council considered, but ultimately rejected, a similar tax this summer. The district’s tax would have raised an estimated $18 million per year.
The coalition pushing against the digital ad tax in Maryland includes about 50 businesses ranging from jewelers to restaurants to tanning salons, as well as chambers of commerce and trade groups for the advertising, internet and media industries. The Maryland-Delaware-D. C. Press Association, of which the Baltimore Sun Media is a member, is part of the coalition.
The tax on digital advertising was coupled with increasing tobacco taxes and applying taxes to electronic nicotine and vaping products for the first time. Because they’re in the same bill, both sets of taxes were vetoed by Hogan and the fate of both rests now with the General Assembly.
The General Assembly’s session is scheduled to start Jan. 13.