Maryland Becomes First State to Tax Big Tech on Digital Ads

The state of Maryland has taken a groundbreaking step, with its State Senate voting to approve the first U.S. tax on revenue from digital ads sold by Amazon, Facebook, Google and other major technology companies. The Senate had to override the governor’s veto to pass the measure, after its House of Delegates gave the law the greenlight. The new law is expected to generate an estimated $250 million in the first year, with money going to that state’s schools. Connecticut and Indiana have introduced similar bills to tax Big Tech companies.

The New York Times reports that Maryland’s passage of the new law “signals the arrival in the United States of a policy pioneered by European countries, and it is likely to set off a fierce legal fight over how far communities can go to tax the tech companies … part of an escalating debate about the economic power of the tech giants as the companies have grown, become gatekeepers for communication and culture and started to collect reams of data from their users.” Maryland’s tax law will likely “face court challenges.”

University of Virginia law school professor Ruth Mason noted that, as tech companies enjoyed booming economic performance during the pandemic, “cities and states saw their tax revenues plummet as the need for their social services grew.”

“They’re really getting squeezed,” she said. “And this is a huge way to target a tax to the winners of the pandemic.”

Maryland Republicans, telecom companies, local media outlets and, of course, Silicon Valley lobbyists argued that, “the cost of the tax would be passed along to small businesses that buy ads and their customers.” Doug Mayer, a former aide to state governor Larry Hogan, “now leads a coalition backed by industry opponents of the tax.” He stated that supporters are “using this bill to take a swing at out-of-state, faceless big corporations.”

“But they’re swinging and missing and hitting their own constituents in the mouth,” he added.

The Maryland tax on “revenue from digital ads that are displayed inside the state” depends on each company’s ad sales. One making “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,” whereas those that make “more than $15 billion a year will pay a 10 percent tax.”

Facebook and Google fall into the latter category. The Maryland tax law was spearheaded by Baltimore Democrat Bill Ferguson who was inspired by economist Paul Romer, who proposed “taxing targeted ads to encourage the companies to change their business models.”

Maryland legislators are slated to “approve a second bill in the coming days making clear that the tax does not apply to media companies and that the cost cannot be directly passed along to businesses that buy ads, although critics say the tax will still lead to higher prices for ads.” In the EU, France “has imposed a 3 percent tax on some digital revenue … [and] Austria taxes income from digital advertising at 5 percent.”