Maryland Democrats Push State Tax on Social Media Ads; Republicans Balk
Maryland should tax digital ad giants like Facebook and Google so they pay their fair share to fund vital education infrastructure, state Senate Democrats and advocates said Wednesday. Various Republican Senators questioned a Democratic tax proposal considered Wednesday at a hearing before the Senate Taxation Committee, which didn’t make a formal recommendation. The Internet Association and advertisers testified the legislative proposal is a discriminatory tax that violates the Constitution.
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Senate Bill 2 from Senate President Bill Ferguson and former Senate President Mike Miller, both Democrats, would impose taxes on annual gross revenues from digital ad services, ranging from 2.5 percent to 10 percent. The bill targets companies exceeding $100 million in annual revenue. Democrats heavily outnumber Republicans in both chambers.
The proposal is “a significant threat to the [advertising] industry. It’s one that’s gotten our attention,” Association of National Advertisers Senior Vice President-Government Relations Christopher Oswald told us after testifying.
IA sent a letter to Miller opposing the proposal, saying it violates the First Amendment and the Commerce Clause. “It would enact a discriminatory tax against a single segment of the advertising market [and] appears to violate both federal law and the U.S. Constitution,” wrote IA Senior Vice President-State Government Affairs Robert Callahan.
Detailed tracking practices by platforms like Facebook and Google are dangerous, testified Nobel laureate economist Paul Romer, who helped craft the proposal. Targeted ads should be taxed to curtail the harmful practice, he said.
Sen. James Rospepe (D) questioned whether Maryland should be the front runner with such a novel approach to taxation, when France, the UK and the U.S. are currently debating similar taxes at the international level (see 2001270027).
“I’m interested in things that can address problems within my lifetime,” Romer told us after testifying. “I can’t wait 50 years, and so I think we’ve got to rely on the state legislatures because they’re the only ones who are going to act within my lifetime.”
Platforms are using Maryland consumers’ data for free, and tapping into the billions of dollars in revenue will help the state fund much needed education infrastructure, said Ferguson. “This is the new economy in action,” he said. “Someone has to lead and Maryland should be that leader.”
Sen. Adelaide Eckhardt (R) noted that Maryland doesn’t currently impose any excise taxes on advertising, suggesting the proposed tax would create an uneven playing field. It’s important to maintain innovation, she said. No one is against funding education, said Sen. George Edwards (R), but he questioned the proposed mechanism. “We don’t want to drive businesses out of the state,” he said. “We need to keep that in the back of our mind.”
There will be immediate legal challenges to the new law, said Sen. Andrew Serafini (R). He said he couldn’t remember putting forward a bill with several, significant constitutional issues, noting it’s questionable whether Maryland should be addressing an issue the U.S. is examining with France. Image is a concern, and Maryland should want tech companies to operate in the state, he said.
Ferguson noted that in the wake of the Supreme Court’s Wayfair decision (see 1809140039), Maryland passed a related online transactions tax, which now generates $80 million a year investment. The new digital ads proposal will fund the first three years of the state’s Kirwan Commission study on education funding.
This innovative piece of legislation will allow Maryland to access much-needed revenue, testified Dolly Kildee, a member of Service Employees International Union Local 500, a group representing Maryland educators. It’s “time for the tax code to catch up with the modern economy,” she said. ANA, the Maryland Chamber of Commerce, the Interactive Advertising Bureau and the American Advertising Federation testified against the legislation.