Taxes

Maryland's Legislature Just Imposed a New Tax on Digital Advertising by Overriding Gov. Larry Hogan's Veto

The first-in-the-nation tax is an expensive and regressive policy that's also possibly unconstitutional.

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Legislators in Maryland voted Friday to override Gov. Larry Hogan's veto and impose America's first tax on digital advertising, a regressive policy that aims to squeeze revenue out of big tech companies but will likely only hurt small businesses—that is, if it survives near-certain legal challenges to its constitutionality.

The new law will impose taxes between 2.5 percent and 10 percent on digital ads targeting Marylanders, with the exact rate to be based on the advertiser's gross revenue. The state expects to generate about $250 million annually from the new tax, but those costs will likely be passed along to companies in Maryland that buy advertisements on digital platforms. In other words, the likes of Google and Facebook will just hike what they charge businesses in Maryland that are seeking to advertise on the web.

Hogan, a Republican, had vetoed the bill in May. At the time, he called the measure a "misguided" attempt to "raise taxes and fees on Marylanders at a time when many are already out of work and financially struggling."

On Thursday, the state House overrode the governor's veto by a vote of 88-32. The state Senate followed suit on Friday afternoon with a vote of 29-17.

"We want to be the first state in the country to punish our mom-and-pop businesses for the absurd notion of wanting to advertise on Facebook and Google," said state Sen. Stephen Hershey (R–Queenstown), who voted to sustain the veto.

Arguments in favor of overturning the veto on Friday included a mishmash of populist condemnations of "big tech" platforms, vague promises to use the money to improve Maryland schools, and non sequitur claims about how taxing digital ads would reduce teens' use of e-cigarettes and vaping products.

State Sen. Jim Rosapepe (D–College Park) pointed out that companies like Facebook and Google have seen profits rise during the COVID-19 pandemic—something that has happened, of course, because they provide a valuable service that's become even more important now. Rosapepe argued that the bill was necessary to ensure that "the handful of big tech winners" were "paying their fair share in Maryland."

Now that Hogan's veto has been overturned, the tax is likely to face a series of lawsuits. It could be challenged as a violation of the so-called Dormant Commerce Clause, which prohibits states from discriminating against different types of interstate commerce, because it contains a carveout to exclude Maryland-based businesses from the tax and because it targets only certain types of advertising while excluding others. It could also violate the First Amendment since it imposes costs on certain types of speech, says Joe Bishop-Henchman, vice president of tax policy and litigation for the National Taxpayers Union Foundation.

In a review of the proposed tax last year, state Attorney General Brian E. Frosh weakly concluded that the bill was "not clearly unconstitutional," even though he also highlighted a number of potential problems the state would face if it had to defend the measure in court. It seems likely that Maryland's attorneys will soon get that opportunity.

"Instead of making money for the Maryland government, it'll cost a lot to pay a bunch of lawyers to defend something that can't be really be defended," Bishop-Henchman, who is also national chairman of the Libertarian Party, told Reason.

Even if the law does survive the scrutiny of the courts, don't expect it to work the way advocates say it will.

"Facebook is going to be fine," said state Sen. Johnny Ray Salling (R–Dundalk) shortly after the veto-overturning vote was taken Friday. "It's the small businesses that will be hurt."

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            4. 29-17 doesn’t seem to be a 2/3 majority.

              1. In Maryland it only requires 3/5, not 2/3 to override a governor’s veto.

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  2. All googbook has to do is cut off all activity in MD until the legislature is recalled.
    Or even cheaper, include in the contract/terms of service that no advertising is intended for anyone in MD. Like those silly “not intended to diagnose, treat, or cure any disease” thingys.
    Best scenario; MD files suit, and all cell phones in the capital magically quit working. The ultimate cancel; an entire legislature.

    1. “not intended to diagnose, treat, or cure any disease”

      Don’t forget “for tobacco use only,” heh heh.

  3. If Google and Facebook had some balls they would throw every lawmaker who voted for this off their platform. And this why I voted for Lockdown Larry, he maybe a piece of shit but that’s an improvement over the alternative.

  4. It’s OK, because our rulers here in Montgomery County have said that starting Sunday, we are now going to be allowed to spend up to 90 minutes inside a restaurant, as long as we give them our names and contact information.

    I suppose I’ll go out for the second two periods of a hockey game, since a full game takes longer than the permitted time.

    West Virginia starts looking better by the hour.

    1. Use your stimulus wisely; first half at one bar, second half at another.
      Share the love – – – – – –

  5. East coast don’t care.

  6. Arguments in favor of overturning the veto on Friday included a mishmash of populist condemnations of “big tech” platforms, vague promises to use the money to improve Maryland schools, and non sequitur claims about how taxing digital ads would reduce teens’ use of e-cigarettes and vaping products.

    Don’t forget that the veto is racist, sexist, transphobic, and supports white supremacy and the patriarchy.

    As far as it being unconstitutional, well, you gotta keep testing that fence to see if it’s still electrified. Someday soon it won’t be and then all bets are off as to what’s allowable and what’s not.

    1. Someday soon it won’t be

      The fence hasn’t been electrified for decades and the lunatics have long since escaped the asylum and are now running the country from the highest political offices in the land on down.

  7. Democrats. Feh.

  8. “Facebook is going to be fine,” said state Sen. Johnny Ray Salling (R–Dundalk) shortly after the veto-overturning vote was taken Friday. “It’s the small businesses that will be hurt.”

    I don’t know why anyone would assume this wasn’t the point. Democrats hate small business owners. Too hard to wrangle. Way easier to work with just a few very large businesses.

  9. Cancel MD.

  10. Why was the veto overridden when 27-19 is short of a 2/3 majority?

    1. In Maryland it only requires 3/5, not 2/3 to override a governor’s veto.

  11. The internet is clearly ‘interstate commerce,’ and I don’t understand how any state can attempt to regulate or tax it. California’s privacy law is a good example. Federalism doesn’t mean that every level of government gets to do every function.

    1. “Penaltax!”
      Universal solvent.

  12. So each ad should have the disclaimer: Not intended for people living In Maryland.

  13. Do they currently tax national TV networks for ads viewed by MD residents? If not, how is this any different?

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