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.

On February 3, 2021, the Kansas House of Representatives introduced H.B. 2230, which would expand the state’s sales tax to include all sales of digital property and subscription services, regardless of whether the purchaser has a permanent right to use the property or whether the right to use the property is conditioned on continued payment. The bill defines “digital property” to mean media or products that are encoded in machine-readable formats and transferred electronically, including but not limited to: digital audio-visual works, digital audio works, digital books, artwork, digital photographs and pictures, periodicals, newspapers, magazines, digital greeting cards, graphics, templates, patterns, desktop applications, mobile applications, web applications, cloud-based applications, native applications, online games, video games, electronic games, any digital code related to any of these items, and any streaming service related to any of these items.

This afternoon, the Maryland Senate voted 29-17 to override Governor Larry Hogan’s veto of House Bill 732, which creates an entirely new gross revenues tax on digital advertising services – display ads, search engine ads, mobile application ads, and ads within a piece of software.

Yesterday, the Maryland House of Delegates voted 88-48 to override the veto of House Bill 732.  The bill has now received the required three-fifths vote by both chambers of the Maryland Legislature to override the veto and enact the nation’s first gross receipt tax on digital advertising. As mandated by the Maryland Constitution, the tax will take effect in 30 days. 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.

The tax has drawn scrutiny as violating federal law, including the Permanent Internet Freedom Act and the dormant Commerce Clause.  Thus, legal challenges to the new tax will inevitably follow.

In this episode of the SALT Shaker Podcast policy series, host and Eversheds Sutherland Partner Nikki Dobay is joined by Patrick Reynolds, Senior Tax Counsel, with the Council On State Taxation (COST) and fellow Partner Jonathan Feldman. They discuss a Nebraska bill that would fix an issue related to Internal Revenue Code section 965, deemed repatriation income, and GILTI. They also review some significant legislation in Alabama.

The Eversheds Sutherland State and Local Tax team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. This series, which is focused on state and local tax policy issues, is hosted by Partner Nikki Dobay, who has an extensive background in tax policy.

Note: As of February 11, the Alabama measure passed the Senate and is on to the Governor’s desk.

Questions or comments? Email SALTonline@eversheds-sutherland.com.

 

 

 

 

 

 

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Maryland is one step closer to enacting the nation’s first digital advertising tax. This afternoon, the Maryland House of Delegates voted 88-48 to override Governor Larry Hogan’s veto of House Bill 732, which would create an entirely new gross revenues tax on digital advertising services – display ads, search engine ads, mobile application ads, and ads within a piece of software.

The Maryland Senate may vote on whether to override Governor Hogan’s veto as early as tomorrow, February 12th. A three-fifths vote by the Senate (i.e., 60 percent or 29 members) is needed to override the veto and enact the digital advertising tax.

In February 2021, the Illinois Department of Revenue issued a Compliance Alert on the tax remittance obligations of remote retailers, marketplace sellers, and marketplace facilitators. It concluded that remote retailers and marketplace facilitators must collect and remit state and local retailers’ occupation taxes (ROT) administered by the Illinois Department of Revenue – including the Chicago Home Rule Municipal Soft Drink ROT. However, marketplace facilitators are not required to collect and remit other (non-ROT) taxes administered by the Department on sales made by marketplace sellers over the marketplace and remote retailers, including the Prepaid Wireless E911 Surcharge, Illinois Telecommunications Access Corporation Assessment, and Tire User Fee.

In another Compliance Alert, the Department clarified that the Metropolitan Pier and Exposition Authority Food and Beverage Retailers’ Occupation Tax– imposed on certain persons engaged in the business of selling food, alcoholic beverages, or soft drinks – must continue to be remitted by the restaurants. Marketplaces, including food delivery services, should not remit the MPEA Food and Beverage Tax.

Georgia’s income tax conformity bill, HB 265, unanimously passed the state House on February 9, 2021, and is now pending the Senate’s review. Georgia’s conformity to the federal Internal Revenue Code (IRC) is updated annually to adopt the most recent federal tax law changes. As such, HB 265 seeks to conform Georgia’s tax code to the IRC as of January 1, 2021 for taxable years beginning on or after January 1, 2020 with no further decoupling from existing Georgia law. By conforming to the Consolidated Appropriations Act, 2021, dated December 21, 2020, the legislation would resolve any uncertainty as to whether the expenses paid with forgiven Paycheck Protection Program loans would be deductible for Georgia income tax purposes.

In 2018, Georgia’s conformity bill adopted provisions reducing the state’s highest marginal rate from 6.00% to 5.75% for 2019, and provided for further reduction to 5.50% in 2020 upon approval by the General Assembly and the Governor. However, due to the upheaval caused by COVID-19 in the prior legislative session, the General Assembly did not take up implementing further rate reductions for 2020 and after.  While the current conformity bill (HB 265) does not include any rate reductions, it remains to be seen if other legislative proposals may reduce tax rates or provide other tax relief.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state’s tax tribunal recently considered a domicile and residency case involving an eye doctor who moved to the Middle East after a divorce?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card.

Answers will be posted on Saturdays in our SALT Weekly Digest. Be sure to check back then!

A digital advertising tax proposal (LC 3237) has been drafted in Montana at the request of a Republican legislator. The bill, currently in draft form, would impose a new 10 percent tax on the annual gross revenues derived from digital advertising services in Montana on each person with worldwide annual gross revenue from digital advertising services of $25 million or more beginning January 1, 2022.

The bill defines a “digital advertising service” broadly as “an advertisement service on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” A “digital interface” would include “any type of software, including a website, part of a website, or application, that a user is able to access.”

Similar to Maryland’s digital advertising tax proposal, Montana’s proposal would use an undeveloped apportionment fraction to apportion the tax to Montana – the numerator of which is the annual gross revenue derived from digital advertising services in the state and the denominator of which is the annual gross revenue derived from digital advertising services in the United States.  The bill would permit the Montana Department of Revenue to adopt administrative rules to implement the tax, including how to source digital advertising service revenues to the state.

LC 3237 was drafted at the request of Republican Representative Jeremy Trebas.  The draft bill was delivered to Rep. Trebas on February 8 and must be introduced within two legislative days. Montana will now join several other states considering a tax on digital advertising including, Connecticut, Maryland, and New York.

If the bill is enacted, legal challenges will follow. The tax likely violates federal and constitutional law, including the Permanent Internet Tax Freedom Act and the Commerce Clause of the United States Constitution. The Eversheds Sutherland SALT team will continue to follow this proposal and provide updates.

Like other classic combinations before them, Moe and Larry go together like peanut butter and jelly! Read on to find out more about this month’s SALT pets belonging to Linda Klang, Senior Vice President at Lehman Brothers Holdings Inc.

 

 

 

Moe and Larry are 6-year-old domestic shorthair cats that joined the Klang household thanks to Linda’s niece, Sarah. Sarah was in New Orleans for an internship in 2014 and discovered a cat in her neighborhood gave birth to three kittens. After taking care of them for an entire summer, she successfully (and lovingly) snuck two of them on her flight back to New York, and gifted what she initially thought were two female cats to Linda and her husband, Mark.

Moe and Larry are tried and true brothers – unfortunately without a third brother named Curly – that like to pal around together, eat and occasionally sleep side by side. They will also horse around, but not to worry – no one gets hurt. When it comes to tricks, only Larry likes jump up on a chair or bed if Linda snaps her fingers and calls his name. Moe, meanwhile, has no time to entertain those requests.

When they aren’t after their next dose of catnip, they love to watch TV and run around the living room as fast as they can. Thanks to the work-from-home environment, they have become even more attached to Linda and Mark.

We’re happy to highlight this furry pair for our February Pet(s) of the Month!