A coalition spent approximately $400,000 in a failed attempt to encourage Maryland legislators to vote against the state’s new digital advertising tax — the first of its kind in the United States — which targets Big Tech companies.
Marylanders for Tax Fairness Inc., a grassroots lobbying campaign, spent $399,989.98 on publications or other costs associated with its lobbying effort to defeat the tax, according to a May 28 activity report filed with the Maryland State Ethics Commission.
The report was filed by Doug Mayer, a lobbyist and partner at Strategic Partners & Media, who previously worked as communications director for Gov. Larry Hogan (R).
Mayer told Tax Notes in an email that the money was spent on digital outreach and that members weren't charged any membership fees.
The coalition’s website lists the Council On State Taxation, the Internet Association, the American Advertising Federation, the Maryland Chamber of Commerce, the MDDC Press Association, the National Taxpayers Union, local businesses, and some other groups as members.
The coalition, which describes itself as “Marylanders, entrepreneurs, and small businesses who have joined together to fight against unfair taxes being thrust upon the state’s main job creators at the worst possible time in modern history,” argued that the tax would be passed on to small businesses and to consumers.
But according to the activity report, the Internet Association, Verizon Communications Inc., Amazon.com Inc., and Google LLC were the largest contributors to the campaign.
Pat Garofalo, director of state and local policy at the American Economic Liberties Project, told Tax Notes that this is a common strategy employed by Big Tech firms and large corporations.
“Big Tech firms and large corporations tend to dress up their opposition to things that would address their dominance as killing small businesses and horrible for consumers and going to ruin things for the little guy, when they would do no such thing,” Garofalo said. “It’s just a much more politically palatable story to tell.”
Pete Quist, research director for the National Institute on Money in Politics, told Tax Notes in an email it’s a good thing that Maryland requires grassroots lobbying organizations to report their activity. But he said ideally there would be an itemized list of expenditures included in the report, detailing “who was paid how much when, along with a description of the expense.”
Quist said requiring grassroots lobbyists to disclose the entities responsible for more than 5 percent of its lobbying budget is “an excellent reporting requirement by the state of Maryland to give some sense of what an organization really is.”
He noted that “nonprofits as a rule do not have to disclose a full list of funders on their websites (or any list of funders or partners at all), and there probably isn't a requirement that they do that in Maryland even if they engage in lobbying generally or grassroots lobbying specifically.”
Enactment and Ensuing Litigation
Hogan vetoed H.B. 732 on May 7, 2020. The bill imposes a tax on digital advertising services using an apportionment fraction based on global annual gross revenue, which was designed to ensure that large tech companies like Facebook and Google pay their fair share.
The tax is based on a proposal by economist and Nobel Prize laureate Paul Romer, who pitched the idea in a 2019 op-ed in The New York Times as a way to fix the tech industry, which he said has “created a haven for dangerous misinformation and hate speech that has undermined trust in democratic institutions.”
Marylanders for Tax Fairness mobilized an effort to sustain Hogan’s veto of the bill, which failed when the Democrat-controlled General Assembly voted February 12 to override Hogan’s veto.
The Internet Association, which lobbies on behalf of internet companies like Google, Amazon, and Facebook, is a plaintiff, along with the U.S. Chamber of Commerce, NetChoice, and the Computer and Communications Industry Association, in a lawsuit challenging the constitutionality of the tax.
In response to a request to discuss the Internet Association’s lobbying efforts to defeat digital advertising tax proposals around the country and spending on those efforts, Christina Martin, senior vice president of global communications and public affairs, said in a statement: "IA, on behalf of the internet industry, continues to engage around the country on efforts to educate lawmakers and voters about harmful digital tax proposals that will ultimately hurt small businesses and individuals that depend upon internet services for their livelihood and connection to community."
Verizon Media Inc., a division of Verizon Communications, is a plaintiff along with subsidiaries of Comcast in a separate lawsuit that was filed in state court to challenge the digital ad tax.
Mayer said, “Our organization is proud of the work we did telling Marylanders about this deeply flawed bill, and we used every available recourse to ensure they knew the facts and exactly who in Annapolis thought it was a good idea to raise taxes on small businesses in the middle of a worldwide pandemic."
Mayer said that more than 200 businesses joined the coalition and that more than 9,000 Marylanders signed the group's petition.
“This was a bad idea when introduced, and it’s still a bad idea now. This coalition of Marylanders looks forward to seeing it defeated in court," Mayer said.