Photo of the Maryland State House with the Maryland state flag in the foreground
Photo: Jonathan Newton /The Washington Post via Getty Images)

Maryland’s digital ad tax shows how hard ‘easy’ policy can be

Protocol Policy

Hello, and welcome to Protocol Policy! Today I’m taking you inside a world of sex, mystery, and revelation. Lol, just kidding, we’re talking about corporate taxes, but they’re the kind that could cost you money and help pay for your children’s education. Plus, The Wire backs down in India, Meta has to put a “for sale” sign on Giphy, and employee attrition is eating into Amazon.

A taxing fight

A Maryland court struck down the state’s first-in-the-nation tax on Big Tech’s digital ads. Proponents had hoped the levies, as high as 10% on the largest companies, could generate $250 million in education funding. Instead, the ruling could well mean states that had been eyeing the measure — and the profits that Meta and Google bring in — have to go back to the drawing board.

From a political standpoint, there was a lot to recommend a digital ad tax, especially one that targeted the biggest companies.

  • The industry has a ton of revenue to take a slice of, and even though Republicans generally don’t like taxes, there’s loads of bipartisan loathing for Big Tech companies.
  • Back in 2018, states also prevailed — after years of fighting — in winning the right to make e-retailers collect sales taxes.

To many people, it just feels like the public deserves a cut for its unwilling part in the ecosystem, as California Gov. Gavin Newsom proposed back in 2019.

  • After all, companies serve us ads we mostly don’t want, often based on intimate data we didn’t want to give up.

Newsom never went through with it, but he was hardly unique.

  • Maryland alone tried out the tax, but more than a dozen other states have made similar proposals.
  • Other countries, led by France, have also put in place somewhat similar digital services taxes, although those nations mostly paused the levies in the wake of an OECD deal that’s aiming to revamp the taxation of multinationals.

Political appeal aside, however, critics (often on the right) derided the basic soundness of the policy. Opponents especially disliked the law’s vague definition of advertising and the possibility that implementation would often reach outside Maryland.

  • The state’s approach also arguably meant Big Tech would increase costs for Maryland’s small advertisers, which would then raise prices for their local customers in turn.

Ultimately, the Maryland judge said the state’s digital ads tax was illegal.

  • She found the measure violated constitutional requirements that states keep their hands off interstate commerce as well as federal law against taxes that treat ecommerce differently.
  • Even if the state appeals — which Maryland officials have suggested it could — the ruling may well bode poorly for a separate challenge to the tax in federal court, in which oral arguments are scheduled for November.

There are major lingering questions about how lightly states have to tread when trying to regulate the internet, because Congress is generally supposed to be in charge when an industry criss-crosses all the states.

  • Rulings like the one in Maryland’s case telling states to back off have long been among the most dismaying defeats to would-be regulators in Sacramento, Albany, and other capitals.

In short, states that were eager to tap into a big pool of much-despised corporate revenue now probably need to find other ways to bring in cash.

  • They had been willing to let Maryland take on the expense of fighting for its tricky plan, but if Annapolis had prevailed, it seems likely many of those states — and plenty of others, too — would have jumped back in.

Regulating tech is notoriously tricky, which is why Congress has stalled and states have gotten to play around with their own ideas. Perhaps a simple tax seemed to Maryland lawmakers like a faster way to bring tech low and shore up budgets than mucking around with content and the arcane rules of antitrust. There may be more favorable court rulings out there for the state, or for another state that tweaks the idea based on the judge’s concerns. The decision is still a reminder, though, that when it comes to tech, even easy ideas can often prove terribly difficult.

— Ben Brody (email | twitter)

In Washington

The Federal Trade Commission will consider whether home appliance manufacturers should include repair instructions on equipment. The move is intended to “strengthen consumers’ right to repair damaged products, without the need to go back to the manufacturer.”

A chip lobbying group doesn’t think the Chips Act gave them enough money for R&D. In an interview with POLITICO, the COO of NY Creates aired concerns over the “long-term sustainability” of the R&D plan that currently allocates $11 billion for subsidies. The group is understandably cautious about going to Congress and asking for more before proving it can do something with the initial infusion.

The Inflation Reduction Act tax credits could be a game changer for electrified trucks and vans. Analysis from Energy Innovation showed that the tax credits — $7,500 for light- and medium-duty vehicles and $40,000 for heavy-duty trucks — could double or triple the share of electrified vehicles in truck and van fleets by 2030.

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On Protocol

Protocol’s Climate team has a look at nonprofit Terraset, which exited stealth mode on Tuesday, as it plans to help channel private philanthropy into carbon dioxide removal services.

From our “How I Decided” series: How AI critic Meredith Whittaker decided to leave the FTC to become the president of Signal.

Around the world

The U.K. affirmed its order that Meta has to sell Giphy over competition concerns. The original ruling from last year, which the company had appealed, excited antitrust reformers for its close scrutiny of a smaller Big Tech deal.

Japanese regulators want to loosen crypto regulations. The Japan Virtual and Crypto Assets Exchange Association could allow companies to list coins without going through the country’s full screening process as soon as December.

There’s another chapter in the bizarre saga between Meta and Indian digital news outlet The Wire. On Tuesday, The Wire said it would withhold the stories it published alleging Indian politicians in the ruling BJP party had backdoor access to Meta platforms. Meta denied those allegations and said, “We hope that The Wire is the victim of this hoax, not the perpetrator.”

Apple halted plans to source flash memory from a Chinese manufacturer in response to the latest U.S. export controls, according to Nikkei Asia.

EU officials anticipate a wave of Big Tech lawsuits, according to Bloomberg. Since the Digital Markets Act and Digital Services Act are set to go into effect next year, EU digital platform regulator Gerard de Graaf said the companies are likely to sue — though de Graaf also said he favored a collaborative approach.

European ecommerce companies want the European Commission to take action against Google’s shopping business, based on the EC’s 2017 finding that Google abused market power in the shopping space.

In the media, culture, and metaverse

Internet service providers in several cities charge higher rates for worse service in predominantly Black and Latino neighborhoods than in nearby whiter, higher-income areas, an investigation by The Markup found.

In data

$8 billion: That’s how much money Amazon estimates it lost annually due to employee attrition, according to a leaked January 2022 report obtained by Engadget. Voluntary attrition occurred twice as often as involuntary attrition, according to the report, and “only one out of three new hires in 2021” would remain at Amazon beyond 90 days.

More than awkward

The Biden administration is planning for ways to avoid a run-in between the U.S. president and Russian President Vladimir Putin at the upcoming G-20 summit in Indonesia, according to POLITICO. U.S. officials also reportedly expect other Western leaders to avoid Putin. At the same time, U.S. officials are hoping to set up a meeting between Biden and Chinese President Xi Jinping.

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Thanks for reading — see you Friday!

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