Maryland Nears Country’s First Tax on Big Tech’s Ad Revenue

State politicians battling the epidemic to budget gaps have made no secret about their interest in getting a bigger piece of the tech industry’s wealth.

Now, Maryland lawmakers are on the verge of taking a new slice, the country’s first tax on revenue from digital ads sold by companies such as Facebook, Google and Amazon.

The state’s House of Representatives voted on Thursday to override the governor’s veto of the proposed legislation, and the state Senate is expected to follow suit. The tax will generate as much as an estimated $ 250 million in the first year with funds going to schools.

This approval would signal the arrival in the United States of European policy leading policy, and is likely to set off fierce legal battles over how far communities can tax tech companies.

Other states are making similar efforts. For example, lawmakers in Connecticut and Indiana have already introduced bills to tax social media veterans. Several other states, such as West Virginia and New York, lacked the passing of new taxes on tech giants last year, but their proponents may renew their push after Maryland’s success.

The steps are part of a growing debate about the economic power of tech giants as companies have grown, have become gatekeepers of communications and culture and have started collecting data from their users. In the United States, law enforcement agencies brought a number of opposing cases against Google and Facebook last year. Members of Congress have proposed laws to check their market power, encourage them to make more careful speeches and protect the privacy of their users.

Maryland’s tax also reflects a confrontation of two economic trends during the epidemic: the largest tech companies have performed milestone financials as social distinctions advance work, sports, and commerce online. But cities and states saw them Tax revenue plat As their need for social services increased.

“They’re really squeezing,” said Ruth Mason, a professor at the University of Virginia’s law school. “And this is a very big way of targeting the winners of the epidemic.”

Lobbying groups of Silicon Valley companies such as Google and Facebook have joined other opponents of the law – including Maryland Republicans, telecom companies and local media outlets – in the argument that the cost of the tax will be passed along to small businesses that advertise and Their customers buy. Doug Meyer, a former aide to the government, Larry Hogan, who now heads a coalition backed by industry opponents of the tax, said at a news conference last week that supporters of the law “use this bill to swing outside the state Was doing.” , Large corporations.

“But they are swinging and missing and hitting their own components in the mouth,” he said.

The Maryland tax, which applies to revenue from digital ads appearing within the state, will be based on the ad sales that a company makes. A company that earns at least $ 100 million per year in global revenue but more than $ 1 billion a year will not face a 2.5 percent tax on its advertisements. Companies that make more than $ 15 billion worth of business will have to pay 10 percent tax. Facebook and Google have global revenues of over $ 15 billion.

Bill Ferguson, a Baltimore Democrat who heads the state Senate, was a main driver behind the bill. He said he was inspired by An op-ed The essay by economist Paul Romer proposed taxing targeted advertisements to encourage companies to change their business models.

“The idea that an outsider can access and use personal data from another area and pay nothing for its use does not work for a long time,” Mr. Ferguson said.

Maryland’s Democratic-controlled legislature passed the tax last March with veto-proof prominence. But, Mr. Hogan, a moderate Republican, vetoed the measure in May.

“With our state in the midst of a global pandemic and an economic crash, and beginning on our road to recovery, it will now be unconscious to raise taxes and fees,” Mr. Hogan said In a letter Explaining his reasoning.

At the end of last year, industry groups helped create a lobbying organization to prevent Mr. Hogan’s veto from being overridden.

For months, the organization, Marylanders for Tax Fairness, backed by some of Silicon Valley’s top lobbying groups, has warned Spot MPs on cable news and local radio that a proposed tax on digital ads is a “bad idea” . Time.”

The coalition has highlighted stories of small businesses stating that they will eventually pay the new tax costs when they purchase online.

“A new $ 250 million tax during an epidemic,” said the dark-voiced narrator of an advertisement on a one-time video in Annapolis. “Tell Your Legislator: Stop Digital Advertising Tax.”

While some states have imposed sales tax on certain digital goods and services when they are purchased by customers, the Maryland tax would apply fully to the first revenue that a company receives from digital advertising in the United States, Experts said. State lawmakers are expected to approve a second bill in the coming days to make it clear that the tax does not apply to media companies and that the cost cannot be passed directly to businesses purchasing advertisements , Although critics say the tax will still increase the price for advertisements.

European policymakers have turned to digital taxes in recent years as a major regulatory push against American tech giants. France has levied a 3 percent tax on some digital revenue. Austria Income tax from digital advertising at 5 percent. European efforts were condemned by the Trump administration, which threatened to impose tariffs on French goods on the issue.

“I don’t think the issue is any different in Maryland than in California, India, France or Spain,” said State Senator James Rosape, a Democrat who is the vice chairman of the taxation committee. “Given that they are very profitable, they should pay tax.”

Maryland’s tax is likely to face court challenges.

Opponents may argue that because the largest tech companies are not located in Maryland, the law would allow tax activity arising outside the state to violate the Constitution. They may also argue that the law runs contrary to a federal law that states that taxes on digital goods or services should also apply to similar physical products.

“It’s tax discrimination,” said Dave Grimaldi, executive vice president of public policy at the online advertising trade group IAB. “There will be all kinds of challenges as soon as it is implemented.”

But proponents of the law said they believed they were on solid grounds to tax veterans.

“We expect that, even in overriding, it is likely that the industry will file a lawsuit,” Mr. Ferguson said. He said lawmakers have asked the state attorney general’s office whether it feels it can defend the law.

“And they did,” he said. “He signed.”

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