State politicians, grappling with the yawn budget gap from the pandemic, have made no secret of their interest in earning a larger share of the tech industry’s wealth.
Now, Maryland lawmakers are gearing up to take on a new side, with the nation’s first tax on digital ad revenue sold by companies like Facebook, Google and Amazon.
The state House of Representatives voted on Thursday to deny the governor’s veto over the proposed law, and the state Senate is expected to follow suit. This tax will generate an estimated $ 250 million in the first year after enactment, with the money going to schools.
This approval would signal the emergence of European-led policy in the US and it could potentially spark a furious legal battle over how communities can tax corporate firms. How far is this technology.
Other states are pursuing similar efforts. Lawmakers in Connecticut and Indiana, for example, have introduced bills to tax social media giants. Several other states, like West Virginia and New York, did not pass new tariffs on tech giants last year, but their backers could continue pushing after Maryland’s success.
These moves are part of the growing debate about the economic power of tech giants as companies have grown, become gatekeepers for communication and culture and begin to collect. collect data from their users. In the United States, law enforcement launched antitrust lawsuits against Google and Facebook last year. Members of Congress have proposed laws to test their market power, encourage them to moderate their words more carefully, and protect users’ privacy.
Maryland’s taxes also reflect the clash of two economic trends during the pandemic: The biggest tech firms experienced significant financial performance as social exclusion shifted from work, entertainment and more online commerce. But cities and states have seen their tax revenues plummet as demand for their social services increases.
“They’re really suffocated,” said Ruth Mason, a professor at the University of Virginia law school. “And this is a huge way to tax pandemic winners.”
Lobbying groups for Silicon Valley companies such as Google and Facebook have joined other legal adversaries – including the Maryland Republican Party, telecom companies and local media firms – with The argument is that tax costs will be passed on to small businesses that buy advertisements and their customers. Doug Mayer, former aide to Governor Larry Hogan, who now leads a coalition backed by rivals in the tax industry, said at a press conference last week that the advocates of the law had ” Use this measure to carry out foreign activities. , large unknown corporations. “
“But they’re swinging and missing and hitting their own ingredients in the mouth,” he said.
Maryland taxes, which apply to revenue from digital ads displayed within the state, are based on ad sales that a company generates. A company that generates at least $ 100 million annually in global revenue but no more than $ 1 billion a year will face a 2.5% tax on its ads. Companies making more than $ 15 billion a year will have to pay 10 percent tax. Global revenues for Facebook and Google far exceed $ 15 billion.
Bill Ferguson, a Baltimore Democrat who is currently chairman of the State Senate, is the main driving force behind the bill. He said he was inspired by an Op-Ed essay by economist Paul Romer proposing taxing targeted ads to encourage companies to change their business models.
“The idea that an outsider can exploit and use the personal data of another region and not pay for it, that doesn’t work in the long run,” said Ferguson.
Maryland’s Democratic-controlled legislature passed the tax with a veto majority last March. But Mr. Hogan, a moderate Republican, vetoed the measure in May.
Mr. Hogan said in a letter explaining his rationale: “With our state in the midst of an economic disaster and a global pandemic, and just beginning on the road to recovery, tax increases and the charge is now unscrupulous.
Late last year, industry groups helped form a lobby to try to prevent the legislature from overcoming Mr. Hogan’s veto.
For months, the Marylanders for Tax Fairness, supported by some of Silicon Valley’s top lobbying groups, has warned Maryland lawmakers in spots on local cable and radio news. that the proposed tax on digital advertising is a “bad idea” at the “time” level.
The coalition highlighted the story of small businesses that they say will end up paying new tax costs when they buy advertising online.
“A new $ 250 million tax during the pandemic,” said the narrator, voicing a video ad about a bar in Annapolis. “Tell your legislator: Stop taxing digital advertising.”
While some states impose sales taxes on certain digital goods and services when they are purchased by customers, the Maryland tax will be the first tax on sales, experts say. that one company gets from digital advertising in the United States. State lawmakers are expected to pass a second bill in the coming days stating that this tax does not apply to media companies and that costs cannot be passed on directly to buying businesses. advertising, though critics claim that taxes will still lead to higher prices for advertising.
European policymakers have turned to digital taxation in recent years as part of a larger regulatory effort against American tech giants. France has imposed a 3% tax on some digital sales. Austria taxes digital advertising income at 5%. The European efforts have been condemned by the Trump administration, which threatened to impose tariffs on French goods over the matter.
“I don’t think the issue in Maryland is any different from California, India, France or Spain,” said State Senator James Rosapepe, a Democrat who is currently a vice-chairman of the tax committee. “Given that they are too profitable, they have to pay taxes.”
Maryland’s taxes are likely to face court challenges.
Opponents could argue that because the largest tech companies are not based in Maryland, the law would tax activities that originate outside of the state, in violation of the Constitution. They could also argue that the law violates federal law that requires taxes on digital goods or services also apply to similar physical products.
“It’s tax discrimination,” said Dave Grimaldi, executive vice president of public policy at the IAB, an online advertising commerce conglomerate. “There will be all kinds of challenges as soon as it is enacted.”
But advocates of the law say they believe they have a solid basis to start taxing giants.
“We anticipate that, even in the event of an overload, it is very likely that the industry will file a lawsuit,” said Ferguson. He said lawmakers had asked the state attorney general’s office if they felt it could protect the law.
“And they did,” he said. “They signed a contract.”