ICYMI: Maryland’s Digital Advertising Tax

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In case you missed it, Maryland became the first state back in February to pass a digital advertising services tax into law (and over the governor’s veto no less).  The law, titled Digital Advertising Gross Revenues Tax, is designed to tax annual gross revenues derived from “digital advertising services” (meaning advertisements on a digital interface like a website or app) in the state.  But it only applies to large-scale businesses (annual revenues from digital advertising services in Maryland of at least $1 million and global annual gross revenues of at least $100 million), with a sliding-scale tax rate, from 2.5% to 10%, based upon each business’s global annual gross revenues. The law was passed to be retroactive to January 1, 2021, meaning it would apply to the entirety of the 2021 tax year.  Legal challenges came quickly thereafter, but none resulted in immediate overturning of the law.

Instead, in April, the Maryland legislature passed an emergency bill to amend the law (with no anticipated governor veto this time).  The amendment provides exceptions such as disallowing the direct passing of the tax onto the consumer and exempting broadcast and news media entities.  The amendment also delays the effective start date of the tax until January 1, 2022.  The amendment is set to go into effect later this month and be retroactive to the date of the amendment.  However, legal challenges continue to mount and will be monitored closely by those affected on both sides.

Critics of the legislation say that it will push the tax back onto consumers through higher prices.  Proponents point to estimates that the law will create millions in tax revenue for the State of Maryland.  Others comment, either positively or negatively, that the law appears to target businesses based outside of the state that provide digital advertising services within the state.  Regardless of your viewpoint, it will be interesting to see if other states jump on this bandwagon — at least a few are considering it but may be waiting to see how Maryland’s legal challenges play out.

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