The Democrat-controlled Maryland House of Delegates voted Thursday to override Republican Gov. Larry Hogan’s veto of legislation that would impose the nation’s first digital ad tax.
In a 88-48 vote, the House revived a bill that would add a 2.5% to 10% tax on revenue from digital advertising services in the state, based on a company’s global annual gross revenue.
The new tax would apply to companies that make at least $100 million in global revenue and at least $1 million in digital ad revenue in Maryland.
The legislation now heads to the Senate, where it will also need a three-fifths majority vote to override the veto and become law. The Democrat-controlled Senate passed the bill last year in a 29-16 vote.
House Majority Leader Eric Luedtke, Montgomery County Democrat, sponsored the bill and told The Washington Times on Thursday that it is aimed at Big Tech companies.
“Small businesses in Maryland pay their fair share of taxes. Massive companies like Facebook and Google should pay their fair share as well,” Mr. Luedtke said in an email. “It’s wrong to ask everyday Marylanders to pay their hard earned money in taxes and not ask the same of people like Mark Zuckerberg.”
Money from the digital advertising tax, along with a new online streaming service tax, would be used to help fund a multibillion-dollar education funding bill.
The House this week voted to override vetoes of the streaming service tax and the education funding legislation.
Mr. Hogan vetoed the digital ad tax last year, saying it would come “at a time when many are already out of work and financially struggling.”
Before Thursday’s vote, several Republican lawmakers reiterated Mr. Hogan’s concerns and said the legislation could drive businesses out-of-state.
Delegate Jesse T. Pippy, Carroll County Republican, called it “an attack” on Maryland businesses — more than 95% of which are small — that have been battered by the coronavirus pandemic.
“Instead of us sending them a life raft, the General Assembly is now hitting them with a tax on the very thing that this pandemic has forced them to do, which is to go online,” said Mr. Pippy.
Rebecca Snyder, executive director of The Maryland, Delaware, D.C. Press Association, said Thursday in an email that the measure as written “would devastate local media and the businesses that advertise digitally.”
In an effort to address such criticisms, Mr. Luedtke and Senate President Bill Ferguson, Baltimore Democrat, cross-filed two bills last week that would add exemptions and restrictions to the tax.
Specifically, the measures would exempt select broadcast and news media organizations from the tax and ban companies from passing the cost of the tax on to customers through a separate fee, surcharge or line-item.
Delegate Jason Buckel, Allegany County Republican, said Thursday that companies could circumvent the safeguards by raising the overall advertising cost — an argument cited by more than 100 small businesses in the Marylanders for Tax Fairness coalition.
“I understand the intent of it is not to allow a direct pass along of the costs, but believe me, the people who invented Facebook, Google and Instagram and Twitter — they’re smart too and they’ll figure out a way around our way around,” Mr. Buckel said.
Committee hearings on the proposals are scheduled for this month.
Other states that have tried to adopt similar digital ad taxes have faced constitutional roadblocks. According to Forbes, the bill may violate the foreign commerce clause against enforcing a tax on international businesses, as well as First Amendment guarantees against targeting industry-specific media.
Delegate Samuel Rosenberg, Baltimore Democrat, cited the popular phrase from late Supreme Court Justice Louis Brandeis that states “are the laboratories of democracy” so “the fact that no other state has done this yet is not a negative comment.”