The Maryland General Assembly has overridden Governor Larry Hogan's veto of the Digital Advertising Gross Revenue Tax (HB 732), according to the Association of National Advertisers (ANA), which signals it will take the law to court.
Ad sales and services taxes are periodically introduced as states look for new revenue and ANA is always on the lookout to spread the alarm when that happens, but ANA has said this would be the first one that passed a legislature.
The law institutes a gross revenues tax on "certain" digital ad services, and presumes that digital ads are provided in the state under "certain" circumstances and require "certain" persons with "certain" annual gross revenues from digital ad services to pay the tax.
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Of his veto, Hogan said at the time (back in May 2020) that the economic fallout from the COVID-19 pandemic means it would be "unconscionable" to approve any new "tax hike" legislation. The bill would also boost the state's coffers, which have also been hit hard by the virus, which is likely why it secured enough votes to override the veto.
The bill would levy a 10% tax on “annual gross revenues of a person derived from digital advertising services in the state.” The tax adjusts according to a company’s global annual gross revenue and could have applied to a lot of companies.
“ANA believes this law will be found to be unconstitutional and violates the Internet Tax Fairness Act that bans discriminatory taxes on Internet digital communications," said Dan Jaffe, ANA Group executive VP of government relations, in a statement. "Enacting this law will slow job growth in Maryland, dampen consumer demand, discourage business investment, and ultimately cause consumers to pay far more for products and services. It will create a highly toxic marketplace for digital advertising and needs to be overturned in the courts."
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Jaffe said he anticipated "a successful challenge in the courts to this law," which he argued would be sufficiently costly for the state to "negate the legislature’s argument that this tax will provide funding for education," adding "we intend to continue to fight against this misguided bill."
“While aimed at large tech companies, taxes are always passed on to the customer. In this case, small businesses that have come to rely primarily on digital ads for effective, affordable advertising will see their prices increased at a time when small businesses are struggling to survive the worst economy in decades," said Connected Commerce Council (3C) President Jake Ward.
“Lawmakers always claim to support small businesses, but time and time again, they turn around and pass laws that hurt small businesses," said Ward. "Instead of passing short-sighted taxes, the government should help small businesses maximize digital advertising and other low-cost digital tools. Small businesses need training, education, and support to better use digital tools, not tax penalties for using them.”
