A coalition of more than 200 businesses is increasing pressure on Maryland legislators to sustain the governor’s veto of what would be the nation’s first tax on digital advertising.
H.B. 732 would impose a graduated tax on digital advertising services in the state that are provided by entities with global annual gross revenues of $100 million or more. Supporters of the proposal say it targets large corporations like Facebook, which should pay their fair share.
Gov. Larry Hogan (R) vetoed H.B. 732 on May 7, 2020. Democrats in the General Assembly are expected to attempt to override the governor’s veto the week of February 8.
According to the bill’s fiscal note, the proposal could generate up to $250 million in the first full year that the tax is collected and implemented. However, that amount could be lessened by potential litigation and compliance issues, the note said.
Some doubts have been raised about whether the tax would be constitutional. The state attorney general's office said in a February 7, 2020, letter that while there is a chance that the digital advertising tax legislation could be unconstitutional, it is not “clearly unconstitutional.” The letter raised a variety of legal issues with the proposal, including that the tax could violate the Internet Tax Freedom Act.
During a February 4 press call, members of the Marylanders for Tax Fairness coalition, Lt. Gov. Boyd Rutherford (R), and House Minority Leader Nicholaus Kipke (R) argued that the tax would be passed on to small businesses already struggling to stay afloat because of the COVID-19 pandemic.
“When Governor Hogan vetoed the bill last year, it was clear that we were facing an incredibly challenging economic recovery as a result of the pandemic and that the government was going to lose revenue — and that we were going to have to take and make some hard honest decisions in regard to state financing. . . . So, it should go without saying it is simply not a time to raise taxes on hardworking Marylanders and small businesses,” Rutherford said.
Rutherford also said that because of the pandemic, local brick-and-mortar businesses have shifted to online advertising and sales.
“This isn’t just a tax on large corporations with smart phone apps and curbside pickup and free 24-hour shipping. It’s also a tax on small mom-and-pop stores, local Main Street small businesses, and ones who have had to adapt and retool their entire business model due to the pandemic,” Rutherford said.
Rebecca Snyder, executive director of the MDDC Press Association, a member of the coalition, argued that the tax would hurt local media outlets, which rely on advertisers.
“When there’s not local advertising, local news coverage will suffer,” Snyder said. “Reporters are cost-setters in news media outlets, and they’re paid for by advertising or subscriptions.”
Lobbyist Doug Mayer, who is spearheading the coalition, said more than 8,000 Marylanders have signed a petition to stop the tax and that supporters have sent more than 12,000 emails to legislators encouraging them to allow the governor's veto to stand.
Despite the lobbying effort, Democrats may have enough votes for an override.
The Senate passed the bill March 17, 2020, on a 29–16 vote, and the House approved it 88 to 47 the next day. The legislature can override a governor’s veto with a three-fifths vote in both chambers.
Jeremy Baker, spokesman for House Speaker Adrienne Jones (D), told Tax Notes February 4 that the House has enough votes to override the governor’s veto.
The Senate also intends to override the veto, according to Jake Weissmann, spokesman for Senate President Bill Ferguson (D).