For the past year, PMBA has been following an important bill in Maryland regarding the taxation of digital advertising services. On March 18, 2020, the General Assembly passed HB 732 and is now waiting for signature by Governor Hogan. Although states have passed laws to apply sales tax to certain digital products in the past, this is the first tax on gross revenues of large digital advertising companies.
The Governor is facing significant pressure to veto this bill by many industry groups in the advertising and television markers. Although initially conceived to tax large out-of-state digital advertising companies such as Google and Facebook, the final bill is far-reaching. If this bill is signed, larger digital advertising companies will pass the cost of the tax down to the small and medium-sized businesses in Maryland that are buying the advertising.
How Will the MD Digital Advertising Tax Work?
The new bill proposes a tax on “gross revenue of a person derived from digital advertising services in the state.” Unfortunately, the bill is vague on defining how revenue is derived from Maryland, leaving it up to the interpretation of State Comptroller. Companies with a global annual gross revenue of $100M or more are subject to the tax at a rate starting at 2.5%, a number which goes up to 10% for companies with revenue over $15B. Since the tax is on gross revenue, it appears the tax can be applied on multiple levels from the digital advertising agency to the digital advertising placement company. There does not appear to be a reduced rate or exclusion for the wholesale purchase of digital advertising. It is very common for a company to purchase their ad placements through an agency whom them purchases the digital ads from companies such as Google.
PMBA will continue to monitor the legislative activity on Maryland and keep our digital advertising clients up to date.