April 6, 2020 – The Coalition for Healthcare Communication last week endorsed an urgent request to Maryland Governor Larry Hogan (R) to veto HB 732, which would put in place the nation’s first tax on digital advertising. The request, sent March 31 by national media and advertising trade associations and members of The Advertising Coalition, states that these entities are writing to “express our strong opposition to enactment of a new and unprecedented state tax on digital advertising.”
HB 732, passed by the Maryland legislature March 18, would impose a tax on “digital advertising services,” including banner advertising, search engine advertising, interstitial advertising, and similar advertising on websites or any type of software. The tax would begin at 2.5 percent and scale up to 10 percent, “but it is unclear how the tax would actually be calculated and who would pay it,” according to CHC Executive Director Jon Bigelow.
“If Maryland’s legislation goes forward, further state efforts might be on hold pending outcome of the legal challenges. On the other hand, if Gov. Hogan vetoes the Maryland bill and the legislature fails to override his veto, then it’s possible New York, Nebraska, or other states will pursue measures to tax digital advertising,” Bigelow said. “Ultimately, Congress could step in to try to avert having different digital tax regimes in multiple states.”
In the veto request letter, the signatories state that HB 732 violates the due process, equal protection, and commerce clauses as well as the First Amendment of the U.S. Constitution. The “very serious” legal defects include that the legislation: (1) is preempted by the federal Internet Tax Freedom Act, which prohibits discriminatory taxes on electronic commerce; (2) discriminates against interstate and foreign commerce, in violation of the U.S. Constitution; and (3) violates the First Amendment because it is a new, punitive tax that “inherently targets protected First Amendment activities and therefore is unconstitutional,” according to the letter.
The letter also points out that HB 732 would undermine and strongly erode Maryland’s economy at a time when businesses are facing extraordinary challenges from the Covid-19 pandemic.
“Even if one could set aside the proposed tax’s structural, implementation, and legal deficiencies, the real burden of the new tax will fall on Maryland residents and Maryland businesses who are consumers of advertising services within a digital interface,” the letter states. “Advertising service providers can be expected to pass the tax onto their customers, including Maryland brick-and-mortar businesses that seek to reach new customers online.”
The letter concludes that “this is an ill-conceived new tax that comes at a time when the State of Maryland and the Nation should be shepherding and safeguarding our vital resources and focusing on the health and economic security of our citizens.”
Gov. Hogan indicated in a Feb. 20 tweet that he was unlikely to support large tax increases to fund reforms in Maryland’s public school system.