On February 12, Maryland became the first state in the US to create a digital advertising tax. You may ask, “Why was such a tax proposed?” The answer lies in the financial success of companies like Google and Facebook. For the past few years, government officials have been increasingly concerned with the economic power of Big Tech. Through advanced advertising technology and business models heavily reliant on personal data collection, companies like Google and Facebook have amassed enormous wealth.
Maryland is the first state in the US to pass a digital advertising tax, but similar bills in other states are being proposed.
Some policymakers feel that Big Tech has not paid its dues to society. Since e-commerce and digital advertising are still relatively new economic phenomena, US government bodies are slowly working to understand and regulate them. Across Europe, many countries have already imposed taxes on Big Tech.
With President Trump out of office, the US is now beginning to follow suit. The latest events in Maryland are likely to motivate other states to pass similar legislation in the months and years ahead. Connecticut and Indiana have recently introduced similar bills. However, it is still uncertain if these bills will pass.
Maryland's digital advertising tax targets Big Tech and will fund education.
Maryland’s online ad tax is fairly straightforward. It targets companies that make more than $100 million per year selling digital advertising. Small firms will not be impacted. Companies that exceed the $100 million revenue threshold will pay a 2.5% to 10% tax dependent on their earnings.
Higher revenues will be taxed at higher rates within this range. Maryland projects that this digital advertising tax will raise $250 million in its first year. These tax dollars will be used to fund education in the Old Line State.
Big Tech is likely to raise digital ad prices in response to new taxation.
Unsurprisingly, business and technology groups strongly opposed the bill in Maryland. They claimed that a tax on online advertising would harm small businesses who use digital ads to attract new clients. In response to this new taxation, it is highly likely that Google and Facebook will raise their ad prices. Increasing the price of advertising allows Big Tech to pass their tax burden onto the businesses that run ad campaigns on their sites. With the possibility of higher digital advertising costs, business owners should be prepared to reassess their marketing budgets and adjust their goals.
Litigation is on the horizon as Big Tech will not go down without a fight.
Due to the strong opposition of business and tech groups, it is only a matter of time before Maryland’s digital ad tax is headed to court. Many legal questions about state power versus federal authority, the Constitution’s Interstate Commerce Clause and the Internet Freedom Tax Act will be up for debate. In Maryland, litigation could take years. The passage of similar tax bills in other states will certainly bring additional legal battles. Only time will tell if digital advertising taxes stick or if they will be subject to repeal based on unconstitutionality.
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