Maryland on Friday became the first state to enact a digital advertising tax targeting large tech companies like Amazon, Google and Facebook, which could be followed by similar taxes in other states.
For companies making more than $100 million in global revenue, the law imposes a 2.5% tax on money generated from selling digital advertising services in the state; the tax rate goes up to 10% on companies making more than $15 billion, which would apply to both Facebook and Google.
The bill was vetoed by Maryland’s Republican Governor Larry Hogan, but the Democratically-controlled legislature overrode the veto Friday.
The law is likely to face legal challenges, and Maryland Attorney General Brian Frosh acknowledged last year that there is “some risk” it could be overturned.
Lawmakers said there is a growing concern that Silicon Valley companies, whose share prices have skyrocketed during the pandemic, aren’t paying their fair share as the pandemic-fueled economic downturn hits state budgets.
State Senator Bill Ferguson also argued that tech companies profit off of collecting data on Maryland residents to serve them with targeted ads, which large corporations should pay for.
“At a time when Maryland’s budget is being impacted in unforeseen and astronomical ways due to COVID-19, Maryland families and businesses can foot the bill, or big tech can start paying their fair share,” Ferguson said.
$250 million. That’s how much revenue Maryland is expected to collect from the tax in its first year, according to the Washington Post, with the money earmarked for education.
The Internet Association, the lobbying group representing Google, Amazon, Apple, Microsoft and other tech companies, called the law “political theater” and argued that digital advertising is a “lifeline” for small businesses. They say the tax will likely be passed onto businesses actually paying for advertising on platforms run by Facebook and Google.
“Maryland now has the dubious honor of being the only state in the country to have ever passed such a flawed tax, and the added distinction of doing so in the middle of a pandemic and economic crisis,” the lobbying group said in a statement. “At least Maryland businesses and consumers can rest easier knowing that the courts will have the last say on this matter.”
The advertising industry, too, scrambling to oppose the law. The Association for National Advertisers said in a statement the measure will create a “highly toxic marketplace for digital advertising and needs to be overturned in the courts.”
The push to raise taxes on tech giants follows a similar push in Europe. Critics say the European Union’s tax structure has loopholes allowing Big Tech to pay little or no taxes, and the Organization for Economic Cooperation and Development (OECD) is working up its own plan to rethink how Big Tech is taxed in the EU. Still, France went forward with its own tax in 2019, a move that put it on a collision course with the Trump administration, which threatened to place retaliatory tariffs on French goods in response.
What To Watch For
Connecticut and Indiana have introduced similar taxes targeting Big Tech, prompting concerns that a flurry of taxes could hit the tech industry’s bottom line.