Maryland has become the first state in the nation to approve legislation taxing Big Tech’s advertisement revenue, as the Democratic-controlled Legislature overrode Gov. Larry Hogan’s veto on the measure.
Following an 88–32 vote in the House of Delegates, the state Senate overrode the veto on Feb. 12 by a margin of 29–17.
The bill has two components: increasing taxes on tobacco products and implementing a brand new tax on revenues of digital advertising.
“The bill imposes a tax on the annual gross revenues … derived from digital advertising services in the State,” a summary from the House says.
The amount of taxes will depend on global annual gross revenues; people or companies with higher revenues will be ordered to surrender higher percentages of what they make through digital ads.
“Companies like Amazon, Facebook, and Google have seen their profits drastically increase during the COVID-19 pandemic while our Main Street businesses are struggling to keep up,” Senate President Bill Ferguson, a Democrat who spearheaded the legislation, said in a social media post shortly before the vote.
“This targeted tax on companies that make over $100,000,000 a year ONLY from digital advertising is a vital mechanism to make sure big tech pays taxes in Maryland, just like our small businesses. 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.”
One analysis pegs the annual collection from the new tax at $250 million.
The bill is one of a number of efforts around the nation to rein in Big Tech—major technology firms like Facebook—as the companies amass more money and flex their power with bans of people such as former President Donald Trump.
Hogan, a Republican, vetoed the bill because he believed it would “raise taxes and fees on Marylanders at a time when many are already out of work and financially struggling,” he said in a letter to Ferguson and House Speaker Adrienne Jones last year.
Maryland Attorney General Brian Frosh, a Democrat, reviewed the bill and said it was constitutional.
Some provisions may raise concerns if the legislation is challenged in court, he told Hogan in a letter in April 2020, but “it is our view that these provisions are not clearly unconstitutional.”
“Further, if these provisions were challenged and a court were to find any of them unconstitutional, it is our view that each of the provisions would be severable from the remainder of the bill,” he said.
Some groups had fought the bill’s passage, including the Association of National Advertisers, the Internet Association, and Marylanders for Tax Fairness, a coalition that brought in ex-Hogan aide Doug Mayer as a spokesman.
The group called the legislation “unworkably vague” and asserted it would guarantee tax increases on small businesses.
“This tax increase was historically shortsighted, foolish, and harmful to countless small businesses and employees, and Marylanders will remember it that way,” Mayer said in a statement on Feb. 12.
The Tax Foundation, a tax policy nonprofit, said the bill likely runs afoul of the Permanent Internet Tax Freedom Act, a federal law that bars discriminatory taxes on electronic commerce. The bill doesn’t clearly state which party or parties may be subject to the tax, the foundation said.
The Internet Foundation, a coalition that represents companies like those targeted by lawmakers, suggested that the law would be challenged in court.
“At least Maryland businesses and consumers can rest easier knowing that the courts will have the last say on this matter, and that the law, not politics, will decide the outcome,” Robert Callahan, the coalition’s senior vice president of state government affairs, said.