Maryland lawmakers quietly approved HB 732 late last week, which imposes a 10 percent tax for every digital ad sold by companies such as Google and Facebook.
The legislation also applies to smaller companies, but at a lower tax rate based on annual global gross revenues. Businesses with $100 million or more in revenue are taxed at 2.5 percent; 5 percent for $1 billion or more; 7.5 percent for $5 billion or more and 10 percent for companies with $15 billion or more in annual global gross revenues.
While the measure only applies to advertisements shown to Maryland citizens, a “copycat” bill was introduced to New York lawmakers last week. Nebraska is considering a similar measure. Both the New York and Maryland bill will collect taxes on "digital advertising services," which include banner ads, search advertising and "other comparable services."
“This is a first-of-its-kind punitive tax on digital advertising,” Stephen P. Kranz, a D.C.-based attorney and partner at McDermott, Will and Emery, says. “There are a lot of companies in the digital advertising space, some obvious names, but many companies will be impacted by this legislation.”
Lawmakers say the bill would fund public schools and generate roughly $250 million for the state in its first year. But despite its good intentions, the legislation has several glaring issues, experts and industry leaders say.