Last week, we learned that Maryland was about to tax digital ads. The state senator who sponsored the bill said that the companies that run online ads don't contribute, and this bill would force them to. It was clear that this attempt was going to be closely watched, both by other states who might be interested in similar legislation, and by tech companies about to be affected by it.
This week, expectation became reality, as a collection of business groups came together to sue the state of Maryland looking to halt the implementation of the new tax. The group, in its suit, called the law "deeply flawed" and "illegal in myriad ways." It also claims that the new tax would "harm Marylanders and small businesses and reduce the overall quality of Internet content." One of the groups acting as plaintiff, the Internet Association, said in a statement,
This is a case of legislative overreach, punishing an industry that supports over one hundred thousand jobs in Maryland and contributes tens of billions of dollars to its economy each year. Internet services and companies are proud to play a role in creating opportunities for Maryland's small businesses and citizens.
This argument is similar to the ones that were brought about when internet sales taxes were issued early on. Online retailers who also had physical retail locations claimed that their businesses would be harmed, because only they would be required to collect taxes. As such, consumers would be harmed because they would lose choice in locations to purchase. Today, we know that was a false argument, because there has never been more choice in online retail, despite sales tax.
In a similar way, this new tax on digital advertising is unlikely to affect consumers. Instead, its most likely outcome will be a small decrease in ad buying up front. There is a small chance that Maryland could see ad buy blocks, but it's not realistic for big companies like wireless carriers, food and drink companies, etc., to skip an entire state.