Business groups are alarmed by efforts to override the Maryland governor’s veto of a first-in-the-nation digital ad tax.
The Maryland state legislature will consider passing a first-in-the-nation digital advertising tax when it convenes for its first session of the new year. Governor Larry Hogan vetoed the bill in May, but Maryland’s General Assembly may attempt to override the governor’s veto when it returns on January 13.
State Senate president Bill Ferguson, a Democrat who represents parts of Baltimore, has championed the tax as a way to help fund an overhaul of Maryland’s public-education system. Ferguson’s legislation would tax tech companies making over $100 million in global annual revenue and over $1 million in annual gross revenue derived from digital advertising in Maryland, setting tax rates between 2.5 and 10 percent. (Ferguson did not respond to a National Review request for comment.)
In an interview with Maryland radio WBAL on Christmas Day, Ferguson defended the tax as a way to force Big Tech companies to help pay for the state’s recovery from the pandemic as well as its “civic infrastructure.”
“The Facebooks of the world, the Twitters, the Netflixes, they are thriving, they are having record profits, [but] they contribute zero dollars to Maryland’s civic infrastructure,” Ferguson said. “I think if we need to recover, and everybody deserves a fair shot in this state, that everyone should be participating in the building of civic infrastructure, and Big Tech and Big Tobacco should be participating too.”
Ferguson also indicated that Democrats in the General Assembly would attempt to override the governor’s veto. Democrats currently hold veto-proof majorities in both the House of Delegates and the State Senate, and were able to override five of Hogan’s vetoes for other bills in January 2020.
However, a coalition of Maryland businesses and pro-business groups, including the state Chamber of Commerce, are vociferously objecting to the tax, contending that the financial burden will hit small businesses in the midst of ongoing closures.
Digital ad taxes have been enacted in various European countries, including the U.K. and France, as a way to generate additional revenue to fund expansive welfare states. A number of U.S. states, including New York and Washington, are now considering following Europe’s lead in the wake of the coronavirus pandemic and the resulting blow to state coffers. If enacted, Maryland’s proposed tax would be the first such example in the U.S.
Big Tech companies including Amazon, Google, and Apple have responded to the European digital ad taxes by passing off costs to consumers and advertisers. Google, for example, increased advertising prices by 2 percent in the U.K. after the country implemented a tax on digital ads. Amazon increased service fees for independent booksellers by 2 percent in response to the U.K.’s “digital service tax,” while Apple regularly adjusts prices for apps in countries that implement such taxes.
Companies would respond similarly in Maryland if the state approves a digital ad tax, according to Margaret Mire, the state-affairs manager at Americans for Tax Reform.
“The reality is the cost of this tax will be passed on to local businesses and consumers in Maryland,” Mire told National Review. “Business will either have to stop advertising because it’s going to be too expensive,” or “they’re going to have to raise costs because the tax will be pushed down to the businesses in the form of higher prices” for ads.
Doug Mayer, spokesperson for Marylanders for Tax Fairness, told National Review that tech companies offer advertising opportunities that small businesses can’t pass up.
“I think certain folks think it’s giant companies” that use digital advertising, Mayer said. But in reality, “it’s your local barbershop.”
“Whatever you think about Google and Big Tech, it’s kind of beside the point because their platforms are largely easy to access, it’s affordable to advertise on them, and there’s a ton of people on them,” Mayer said.
There are also potential legal issues with Maryland’s proposed tax. Mire suggested that because the digital ad tax targets companies based in other states (California, in the case of Google and Apple), the tax could place an undue burden on interstate commerce and thus be in violation of Article II of the Constitution. Additionally, the tax may run afoul of the Internet Tax Freedom Act, which prohibits state and local governments from imposing taxes on the Internet that don’t apply to other services.
“Maryland does not tax traditional advertising, but . . . under this bill, it would tax online advertising, so it seems like it’s a pretty clear violation there,” Mire said.
Democrats need at least 85 members of the Maryland House of Delegates and 29 state senators to override Hogan’s veto of the tax. State Senate minority leader Bryan Simonaire told WBAL that Republicans in the legislature will oppose the override attempt.
“It’s the worst thing you can do when people raise higher taxes on people who are struggling right now just to make ends meet,” Simonaire said. “It’s never a good time to raise taxes, but during a pandemic, it’s actually foolish.”