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