Posted by: danielrashke | February 25, 2021

Leveling the Playing Field; Maryland’s Digital Advertising Tax

Lawmakers from Maryland have introduced and passed the first tax on revenue from digital advertisements sold by tech companies like Facebook, Google and Amazon in the country. The state legislature passed the measure, it was later vetoed by the Maryland Governor. Both the Senate and the House have voted to override that veto.

Revenue from this new tax could generate up to $250 million in the first year alone. Funds from the tax will go toward schools in the state. Now that Maryland has successfully pushed through legislation on this, other states are likely to follow suit. New York and West Virginia previously had similar bills but they were unable to garner necessary support to pass into law. Now that a bill has successfully passed In Maryland, similar legislation is likely to pop up across the country.

While this new bill has garnered a lot of criticism, the root of this legislation is about investing in the communities your business is serving and leveling the playing field with other companies offering services or goods.  Companies will be required to self-report revenue earned from ads on devices linked to a Maryland IP addresses or devices known or suspected to be used in Maryland. While a tax like this is new for the US, several other countries have implemented similar tax. For example, two European countries have already passed similar laws regulating America’s tech giants. France has a 3 percent tax on some digital revenue and Austria taxes income from digital advertising at 5 percent.

TASC has customers in all 50 states and US territories and employees in 42 states. TASC files and pays income, sales, franchise, and other taxes in 36 states based on specific requirements set by each state; such as physical presence, employees, sales and more.

Lack of tax requirements for companies whose services are based online causes a division and a financial advantage for said companies. Imposing tax on digital advertisements is a step in the right direction for creating parity between large and small companies with an online only presence and companies like TASC who are serving customers in all 50 states and have been paying taxes for years. This also prevents large companies establishing a corporate headquarters or a part off their business outside the US where tax requirements are less stringent. This will bring the necessary resources into local communities versus pulling these resources into narrow geographies and/or overseas. 

For years, the internet has been viewed as the wild-wild west. Internet companies have operated with a different set of rules. Because of their virtual jurisdictions passing new laws was tough and enforcing those laws was even tougher when it came to interactions and transactions over the web. But, even in a virtual world, businesses need to be invested and interested in their communities. It’s important that companies invest in the communities where they reside. That includes being taxed and an expectation that they invest in other ways such as through philanthropy and involvement.  

The move to impose taxes on these companies is central to the debate regarding the economic power yielded by tech companies and the lack of regulations imposed on them. According to an article in the New York Times, in the United States, law enforcement agencies brought multiple antitrust cases against Google and Facebook last year.

One argument from those who oppose this new Maryland tax and others like it say this is an attack on these companies because during the pandemic business has been booming for internet-based organizations while local stores have flailed, hurting states tax revenues. This legislation reflects the collision of two economic trends. Large web-based tech companies have had milestone financial performances.

Proponents argue that laws like the one passed in Maryland would cause companies to pass the increase to their clients and customers, when in truth, it’s the businesses that pay the taxes. Businesses like TASC pay taxes in a lot of states, whereas some of these web based companies do  not pay the same taxes. This law changes that. Laws like this do nothing other than level the playing field and tax accordingly.

The tax is intended to apply to large technology-based and online companies with advertising-based revenue models (as opposed to companies with subscription-based revenue models).  Thus, pending the outcome of expected legal challenges, such companies, as well as their owners and sponsors, will need to consider the impact of the tax on their business models and their potential tax obligations to Maryland. In addition, to protecting any and all refund opportunities should any of the expected legal challenges prove successful.    

The new Maryland tax applies to revenue from digital ads that are displayed inside the state and are based on the ad sales a company generates. A company that makes at least $100 million a year in global revenue but no more than $1 billion a year will face a 2.5 percent tax on its ads. Companies that make more than $15 billion a year will pay a 10 percent tax. Facebook’s and Google’s global revenues far exceed $15 billion. The tax structure is conservative and is imposed on a graduated rate scale, based on the taxpayer’s global annual gross revenues, as follows:

  • 2.5% for companies with global annual gross revenues of $100 million through $1 billion,
  • 5% for companies with global annual gross revenues greater than $1 billion through $5 billion,
  • 7.5% for companies with global annual gross revenues greater than $5 billion through $15 billion, and
  • 10% for companies with global annual gross revenues exceeding $15 billion.  

While some states apply a sales tax to some digital goods and services when they are bought by customers, the Maryland tax is the first to be applied solely to the revenue a company earns from digital advertising in the United States. Tech companies have, for years have earned billions of dollars from the lack of tax regulation. Meanwhile, companies like TASC pay taxes all over the United States even though we are only physically headquartered in one state. This move, and more like it will serve to level the playing field.

This isn’t singling out a specific industry. This is the price we all pay for doing business. No matter your size, or jurisdiction, businesses should be taxed like every other business providing a service.


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