By Cordia Scott Hennaman, Associate Editor, MNE Tax
Four organizations have joined in a lawsuit challenging a new Maryland state law levying a tax on digital ad revenue – the latest twist in an ongoing dispute with international implications.
The US Chamber of Commerce, the Internet Association, NetChoice, and the Computer & Communications Industry Association (CCIA) filed the lawsuit February 18, challenging Maryland’s new Digital Advertising Gross Revenues Tax, HB 732. The controversial proposal became law last Friday when Maryland’s Senate voted to override Governor Larry Hogan’s veto.
The act aims to collect an estimated USD 250 million from companies engaged in online advertising in the state of Maryland. The tax is imposed on companies’ Maryland revenue, and the rate could be as high as 10 percent of those revenues. Entities with one million in gross revenue from digital advertising or 100 million in annual gross revenue worldwide are excluded from the tax.
“The Maryland state tax aimed narrowly at a few companies but broadly taxing global revenues is concerning both in scope and precedent,” CCIA President Matt Schruers said.
“The Maryland legislation suffers from numerous constitutional infirmities and we expect it to be blocked on legal grounds,” Schruers said.
Internet Association Senior Vice President and General Counsel Jon Berroya agreed.
“It’s unfortunate that the Maryland General Assembly has decided to penalize a handful of out-of-state companies with this discriminatory law. This is a case of legislative overreach, punishing an industry that supports over one hundred thousand jobs in Maryland and contributes tens of billions of dollars to its economy each year. Internet services and companies are proud to play a role in creating opportunities for Maryland’s small businesses and citizens. We look forward to defending our industry in court.”
Steve DelBianco, President and CEO of NetChoice, compared the law to a toll booth that collects only from new cars and no one else.
Any state following Maryland’s “awful example” will have to refund all those tolls when a court rules the move is illegal discrimination, DelBianco said. “The Internet Tax Freedom Act was created to prohibit precisely what Maryland is doing here by imposing discriminatory charges only for online forms of advertising,” He added.
The US has been very opposed to foreign countries that have enacted this type of tax over the past few years, yet Maryland has now passed legislation doing the same thing.
Other US states have similar bills in progress. Many are now wondering if the US position will change under the new leadership of President Joe Biden.
The US recently threatened trade action against France and more than ten other countries for enacting or proposing to enact similar digital services laws. Such taxes in France, Italy, Turkey, and India discriminate against US multinational companies under the definition of Section 301 of the US Trade Act of 1974, the US has said.
Last month the USTR said it was suspending its December 2019 recommendation to impose punitive tariffs on French luxury goods of up to 100 percent or fees or restrictions on French services. It also said it was delaying its response to the India, Italy, and Turkey digital services tax situation while it finished its trade investigations into digital services taxes proposed or levied by Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the UK.
Cordia Scott Hennaman
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