Over the years, many new technologies online have managed to go untaxed for long periods of time. In fact, even sales of physical goods managed to go untaxed for years. With time, states changed their laws requiring online sellers to tax any purchases made from stores doing business within those states. Early on, companies like Amazon avoided having warehouses, distribution centers, and offices within states that had implemented online sales taxes. Today, however, that is a thing of the past, as there is no avoiding it. The next online tax battleground has been chosen, and it is advertising.
The state of Maryland has passed a law requiring the collecting of tax for digital ad sales. The bill's sponsor, Sen. Bill Ferguson (D), explained the bill saying,
Right now, they don't contribute. These platforms that have grown fast, and so enormously, should also have to contribute to the civic infrastructure that helped them become so successful.
The bill had a difficult path on the way to being passed. Both of the state's General Assembly chambers, Senate and House of Delegates, passed the bill by a wide majority last year. However, the state's governor, Larry Hogan, vetoed the bill in May. In most circumstances, this would have killed the bill, but it had such strong support outside of the governor's office that a veto override was passed this week.
The state has setup a percentage system to determine how much of a company's revenue applies to the state of Maryland for the purposes of taxation: amount of ads shown to Maryland residents divided by total number of ads shown in the US. So, assume everyone in the country sees the same ad, and the ad costs a penny. The state's 6 million residents divided by the country's 330 million residents comes to about 1.8 percent. 1.8% of the $3.3 million comes to about $60,000, which becomes the taxable revenue for the company.
While this bill only applies to Maryland, there is no way this doesn't start a trend similar to that of online sales tax. Over the next few years, we can expect to see similar bills, likely with similar revenue calculators, pop up in states across the country. The companies most involved in online ad sales are the same ones that are coming under fire from both sides of the political isle, so this could be a way to apply pressure on them, and get something back from companies that are becoming less trusted.