Federal Court to Review Groundbreaking Maryland Tax on Digital Advertising

Earlier this month, the Maryland legislature imposed a tax on qualifying companies that show digital advertisements in Maryland. This is the first law of its nature in the United States. Governor Larry Hogan initially vetoed the law when it was presented to him, but the legislature overrode his veto. The law applies to companies with a global gross annual revenue of $100 million or more. The tax is calculated as a percentage of the revenue that a company makes from digital advertisements shown in Maryland. The percentage varies according to the global annual gross revenue of a company. Thus, the tax would be 2.5 percent if their revenue is $100 million to $1 billion; 5 percent if their revenue is $1 billion to $5 billion; 7.5 percent if their revenue is $5 billion to $15 billion; and 10 percent if their revenue is $15 billion or more.

Some of the companies that will shoulder the greatest burden of the new tax are tech giants such as Google and Facebook. Proponents of the tax stress the importance of making these companies pay their fair share in exchange for the benefits that they receive by accessing the Maryland market. They plan to allocate the anticipated $250 million in tax revenue to education.

Now, the US Chamber of Commerce and several trade associations have sued in federal court in Maryland to strike down the law. Their claims are based on various federal laws, including the Internet Tax Freedom Act. The plaintiffs argue that the law discriminates against electronic commerce. They are asking the court to issue an injunction, which means that the law would not be enforced. Since other states may consider similar taxes on digital advertising, the outcome of this case could affect the evolution of laws throughout the US.

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