Just in time for a showdown between the Maryland legislature and big tech companies, Maryland’s novel and controversial digital advertising tax levy could be delayed under an emergency bill recently passed by state senators. Senate Bill 787, still pending in the house, would delay applicability of the new tax to all tax years beginning after December 31, 2021. But the bill also promises to exacerbate several thorny legal challenges advanced by big tech industry leaders and the U.S. Chamber of Commerce against the digital advertising tax in a lawsuit brought last month in U.S. District court. See Chamber of Commerce of the United State v. Franchot, No. 1:21-cv-00410-DKC (N.D.M.D. Mar. 5, 2021).
With several other states considering legislation to adopt similar taxes on digital advertising (Texas being the most recent state to join in with H.B. 4467), current litigation challenging Maryland’s gross receipts tax could set the stage for how other states will attempt to tax digital advertising revenue. As outlined in our previous alert on the novel legislation (available here), Maryland’s digital advertising gross receipts tax is potentially unconstitutional and violative of the Internet Tax Freedom Act. The amendments proposed in Senate Bill 787 could further aggravate constitutional concerns by excluding other categories of taxpayers, including broadcasters and news media, from the tax. The bill would also explicitly prohibit taxpayers from passing on the tax liability to consumers who purchase digital advertising services.
The bill passed the Maryland Senate on March 3 and is subject to a hearing before the House Ways and Means Committee on March 25. Taxpayers providing digital advertising services should continue to monitor the status of the legislation, and contact us with any questions.
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