State lawmakers may target the technology industry with tax increases to address budget shortfalls resulting from the COVID-19 pandemic, according to a tax policy expert.
Morgan Scarboro, tax policy manager and economist at government relations firm MultiState Associates, said that while recovering from recent economic recessions, the five most populous states — California, Florida, New York, Pennsylvania, and Texas — generally levied new taxes on the healthcare and telecom industries.
Scarboro, speaking during a July 21 webinar hosted by the Tax Foundation, said that while she does not expect to see tax increases aimed at either industry after the present economic crisis, she does expect to see tax increases targeting the tech industry. “The reason for that is we’ve seen some increased activity at the state level . . . as far as how states are taxing tech companies,” she said.
The most notable example of this is Maryland’s attempt to adopt a digital advertising tax, Scarboro said.
The Maryland General Assembly passed a controversial bill to impose a gross revenues tax on digital advertising (H.B. 732), which was vetoed May 7 by Gov. Larry Hogan (R). The legislature could override the veto by a three-fifths vote in both chambers.
Observing that the idea behind the legislation was proposed in a 2019 op-ed in The New York Times by 2018 Nobel laureate and economist Paul Romer, Scarboro said, “It’s really important to monitor how folks are talking about these things."
The District of Columbia is also eyeing a digital ad tax.
Scarboro also said she doesn't expect to see states making many changes regarding taxes on remote sellers, because most states have imposed a collection obligation on them.
States are unlikely to make substantive tax policy changes ahead of the November election for political reasons and because of revenue uncertainty, Scarboro said. Those changes will likely come at the end of 2020 during special sessions or during regular sessions in 2021, she added.
Meanwhile, Kathryn White of the National Association of State Budget Officers explained during the webinar the extent of the economic crises facing states. Based on revenue forecasts and information that has become available from fiscal 2020, White said that budget shortfalls are expected to exceed revenue declines experienced during the Great Recession.
"Really, all states are seeing revenue impacts, but in varying ways and varying magnitudes depending on their tax structures, how hard hit they were by COVID, and other factors," White said. "But it's also important to note that this is not going to be just a one- or two-year problem. States are expecting to see impacts from this . . . for several years."