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AAFB Urges Maryland Senate to Dismiss Senate Bill 2, a Proposed New Tax on Digital Advertising Service

Posted on 01/15/2020 12:00 am  /   Legislative Updates

The American Advertising Federation of Baltimore (AAFB) today sent a letter to Maryland State Senate President Bill Ferguson and members of the Budget and Taxation Committee to express the AAFB’s opposition to the recently introduced Senate Bill 2 (SB 2). The bill, co-sponsored by Ferguson and Senator Thomas V. Mike Miller, proposes a new tax on digital advertising services.

AAFB President Matt McDermott also sent a letter to the federation’s membership, urging them to oppose SB 2, which would allow for up to a 10% tax on the annual gross revenue derived in Maryland from digital advertising services.

“This proposed plan is deeply concerning for our industry and for Maryland businesses,” said McDermott. “As written, the bill creates a competitive disadvantage for many local companies, both those who buy advertising or those who manage advertising for clients. Local businesses would be forced to pay this digital advertising tax on top of the state income tax — something their out-of-state competitors do not have to pay. Similar efforts in other states have all been struck down because of their net-negative economic impact or because federal courts found them to be unconstitutional.”

The AAFB’s members include top-ranking executives from the region’s advertising, production, and design agencies, as well as corporate in-house marketing groups, colleges, and law firms. Together, AAFB members represent an industry that helps generate $101.5 billion or 14.6% of annual economic activity in Maryland, according to the most recent studies by IHS Economics & Country Risk.

As detailed in the AAFB’s letter, the proposed plan runs afoul of federal law. It would result in a prohibited discriminatory tax on electronic commerce in violation of Congress’s Permanent Internet Tax Freedom Act (PITFA) as well as the Commerce Clause and the Equal Protection Clause of the U.S. Constitution.

Beyond its dubious legal footing, the plan would have a negative economic impact, forcing Marylanders to pay higher prices for goods and services they purchase from the companies advertising on the digital interface as costs are passed down to consumers. Arizona, Iowa, and Florida each passed broad advertising taxes years ago and each later repealed the tax because it hurt their local economy and was impossible to administer.

“It’s a vague bill that indicates a lack of understanding of what digital advertising actually encompasses. It’s far more than a banner on a website or search ads on Google. The Comptroller’s office would have to hire a small army of new staff, accountants, and lawyers just to administer and manage this amorphous tax. It’s an exceptional burden on state resources and will most likely lead to prolonged and costly litigation,” said McDermott.

A copy of the letter is available at www.baltimoreadvertising.com.

About the American Advertising Federation of Baltimore

Founded in 1920, the American Advertising Federation of Baltimore (AAFB) connects, educates, and advocates for thousands of communications professionals in advertising, marketing, business, tech, education, and law. It is a 501(c)(3) non-profit and a chapter of the American Advertising Federation which includes 200 local clubs across the U.S. representing nearly 40,000 advertising professionals. Visit Baltimoreadvertising.com to learn more.