Tuesday, February 16, 2021

Maryland Now The First To Tax Big Tech’s Ad Revenue

According to The New York Times, State politicians, struggling with yawning budget gaps from the pandemic, have made no secret about their interest in getting a bigger piece of the tech industry’s riches.

Now, Maryland’s lawmakers are taking a new slice, with the nation’s first tax on the revenue from digital advertisements sold by companies like Facebook, Google and Amazon.

The State Senate voted on February 12, 2021 to override the governor’s veto of the measure, following in the footsteps of the state’s House of Delegates, which gave its approval on Thursday. The tax will generate as much as an estimated $250 million in the first year after enactment, with the money going to schools.

The Approval 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.

Other states are pursuing similar efforts. Lawmakers in Connecticut and Indiana, for example, have already introduced bills to tax the social media giants. Several other states, like West Virginia and New York, fell short of passing new taxes on the tech giants last year, but their proponents may renew their push after Maryland’s success.

The moves are part of an escalating debate about the economic power of the tech giants. In the United States, law enforcement agencies brought multiple antitrust cases against Google and Facebook last year. Members of Congress have proposed laws to check their market power, encourage them to moderate speech more carefully and protect their users’ privacy.

Maryland’s tax also reflects the collision of two economic trends during the pandemic: 

  1. The largest tech companies have had milestone financial performances as social distancing moved work, play and commerce further online. 
  2. But cities and states saw their tax revenues plummet as the need for their social services grew.

“They’re really getting squeezed,” said Ruth Mason, a professor at the University of Virginia’s law school. “And this is a huge way to target a tax to the winners of the pandemic.”

The Maryland Tax, Which Applies To Revenue From Digital Ads That Are Displayed Inside The State,
Is 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.

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 got from digital advertising in the United States, experts said. The state’s lawmakers are expected 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.

European policymakers have turned to digital taxes in recent years as part of a larger regulatory push against the American tech giants. France has imposed a 3 percent tax on some digital revenue. Austria taxes income from digital advertising at 5 percent. The European efforts were condemned by the Trump administration, which threatened to impose tariffs on French goods over the issue.

Opponents may argue that because the largest tech companies are not based in Maryland, the law will tax activity that originated outside the state, violating the Constitution. They may also argue that the law runs afoul of a federal law that says taxes on digital goods or services must also apply to equivalent physical products.

But the law’s backers said they believed they were on solid ground to start taxing the giants.

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