On February 12, 2021, the Maryland General Assembly voted to override Governor Larry Hogan’s veto of H.B. 732, which creates an entirely new gross revenues tax on digital advertising services.
As the Maryland Senate voted 29-17 and the Maryland House of Delegates voted 88-48, the bill received the required three-fifths vote by both chambers of the Maryland General Assembly to override the veto. Maryland has now enacted the nation’s first gross receipts tax targeted on digital advertising.
As mandated by the Maryland Constitution, the tax will take effect in 30 days. The tax is applicable to all taxable years beginning after December 31, 2020. The first estimated quarterly payment – at least 25% of the “reasonably estimated” tax based on 2021 Maryland digital ad tax revenues – is due to the Comptroller by April 15th.
Maryland S.B. 787 and H.B. 1200
The Maryland General Assembly recently introduced S.B. 787 and H.B. 1200 on February 5th and 8th, which propose revisions to the digital advertising tax under H.B. 732. The companion bills have two key components:
- Maryland would exempt from the tax advertisement services on digital interfaces (e., websites and apps) owned or operated by or operated on behalf of a broadcast entity or news media entity.
- “Broadcast entity” means an entity that is primarily engaged in the business of operating a broadcast television or radio station.
- “News media entity” means an entity engaged primarily in the business of newsgathering, reporting, or publishing articles or commentary about news, current events, culture, or other matters of public interest. But the term excludes “an entity that is primarily an aggregator or republisher of third-party content.”
- Maryland would prohibit a person who derives gross revenues from digital advertising services in Maryland from directly passing on the cost of the tax to a customer who purchases the digital advertising services by means of a separate fee, surcharge, or line-item. However, the bills would not prohibit taxpayers from indirectly passing on the cost of the tax, such as raising prices to account for this increased cost.
If passed, the bills – like the underlying digital advertising tax – would be applicable to all taxable years beginning after December 31, 2020.
On February 15th, the Department of Legislative Services issued the Fiscal and Policy Note for H.B. 1200. The Department of Legislative Services is unclear on the bill’s revenue impact:
State Revenues: The fiscal and policy note for House Bill 732 of 2020 estimated that annual revenues for the Blueprint for Maryland’s Future Fund from the digital advertising gross revenues tax may increase by as much as $250 million under one set of assumptions. The exemption proposed by the bill may reduce the overall revenue impact of the digital advertising tax provisions of House Bill 732; however, the amount of the revenue decrease cannot be reliably estimated due to a lack of data regarding the amount of digital advertising revenues generated by broadcast and news media entities.
We look forward to learning more about the bills’ impacts soon. Committee hearings will be held on S.B. 787 and H.B. 1200 on February 17th and 26th, respectively.