Ad Tax Issue Heats Up

January 14, 2020

After a period of relative calm in regard to state advertising taxes, there are now signs that these issues are heating up quickly as we enter the new year. Bills have already been introduced that would tax advertising in both traditional and untraditional ways.

In Maryland a new tax on digital advertising could become the first such tax in the nation. SB 2 was introduced late last week and is co-sponsored by both the outgoing and incoming Senate Presidents. The bill would establish a new tax of up to 10% on “annual gross revenues of a person derived from digital advertising services in the state.” The tax would be imposed on a sliding scale depending on a company’s global annual gross revenue and could cover a large number of companies due to SB 2’s broad definitions of “digital advertising services” and “digital interface.” Failure to comply with the new tax could result in a $5,000 fine and 5 years’ imprisonment. In an unusual provision, the tax would not only fall on companies clearly doing business in the state but also on companies “reasonably suspected” of doing so. How this is determined is far from clear.

In addition, yesterday the Nebraska Legislature introduced LB 946 which is sponsored by Senator Tom Breise. The bill aims to lower the state sales tax to 4% while also creating a new tax on a broader array of services. LB 946 would define a service as “all activities that are engaged in for other persons for a consideration and that involve predominantly the performance of a service as distinguished from selling or leasing tangible personal property. The term does not include services rendered by an employee to his or her employer. In determining what is a service, the intended use, principal objective, or ultimate objective of the contracting parties shall not be controlling.” This mirrors more traditional service-based taxes which impact advertising that ANA has been active in defeating over the years.

No matter their nature taxes on advertising are always misguided. They burden a company’s effort to sell. As most states are dependent on sales taxes, increasing this burden is counterproductive. It also creates a double tax on the effort to sell and the sale itself, while simultaneously being ineffective due to the substantial geographic mobility of advertising.

ANA will strongly oppose these short-sighted efforts to tax advertising.


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