Gov. Hogan Vetoes MD Digital Ad Tax alert

May 6, 2020 – Annapolis. Small businesses across Maryland let out a sigh of relief as Governor Larry Hogan vetoed HB 732, which would have, among other provisions, taxed digital advertising in the state. Industry groups representing Maryland’s news media and advertising communities thank the Governor for his commitment to supporting businesses during the COVID-19 pandemic. The economic landscape has changed dramatically in the past month and fragile businesses struggling to get back on their feet cannot afford to pay more in advertising costs.

This legislation would have hobbled businesses who are already on the ropes due to the COVID-19 outbreak and would have ultimately meant higher retail prices for consumers in Maryland.

News reports paint a sobering picture of the advertising landscape. By some accounts, advertising revenues have dropped by 45% in April alone. Your local newspaper helps support its news coverage through connecting local small businesses to advertising in print and digital forms. The only source of revenue for radio broadcasters is advertising, and advertising makes up the majority of revenue for television broadcasters. An ad tax could ultimately lead to less local news, traffic, weather and sports. Most websites are free and advertising-supported. An ad tax would have led to less content and/or more paywalls making them inaccessible to many lower-income Marylanders. The specter of COVID-19 hangs over the world, making the outlook even more bleak.

Advertising agencies across Maryland, many of them small businesses, would have been at a severe disadvantage when competing with firms located outside the state — firms who would not be saddled with additional tax burdens.

A sales tax on advertising would have slowed economic growth. Advertising is a critical part of a growing economy and paramount as Maryland rebuilds after the outbreak. This legislation would have effectively increased digital advertising rates for businesses just as they are trying to get back on their feet after the COVID-19 pandemic. When the cost of advertising goes up, there is less advertising, which leads to less consumer demand. Lower consumer demand reduces revenue, creates fewer jobs, slows the economy and reduces the tax’s usefulness as a revenue source. In addition to everyday consumers, businesses and jobs would have been dramatically affected by this legislation. Before the pandemic, advertising expenditures accounted for $101.5 billion of sales in Maryland. That represents 14.6 percent of the $693.1 billion in total economic output for the State, according to economic research for the media and advertising industries that applied an economic model developed by the 1980 Nobel Laureate for Economic Science, Dr. Lawrence R. Klein. The research further shows that sales of products and services driven by advertising help support 393,667 jobs – nearly 15 percent of the 2.6 million jobs in the State.

In addition to the economic concerns and the potentially devastating effect of businesses across the state, including media, this legislation would have embroiled the State in needless litigation for years to come and jeopardized its ability to derive revenue from the tax. The legislation has significant legal defects, many of which were outlined in a memorandum from the Maryland Attorney General to Senator Serafini dated February 7, 2020. Those concerns include preemption of the federal Internet Tax Freedom Act and the discrimination against interstate and foreign commerce, in violation of the U.S. Constitution, in addition to violations of the First Amendment. Maryland cannot afford to waste money in defending indefensible legislation.

Thank you, Governor Hogan.

– Rebecca Snyder, Executive Director the MDDC Press Association
– Matthew McDermott, President, American Advertising Federation of Baltimore
– Hal Schild, President, American Advertising Federation – DC Chapter