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A lawsuit seeking to block Maryland鈥檚 first-of-its-kind tax on social media digital advertising revenue should be dismissed, the Maryland attorney general鈥檚 office argued in a court filing this week.
Tech lobbyists and the U.S. Chamber of Commerce聽, days after the new tax was enacted by a veto override vote in the General Assembly.
The groups聽聽that the tax is 鈥渁 punitive assault鈥� on digital advertising and violates the U.S. Internet Tax Freedom Act as well as the commerce and due process clauses of the U.S. Constitution.
In a motion to dismiss filed late Tuesday, the state聽, and argues that the case should be brought in Maryland Tax Court.
Additionally, regulations to implement the law聽聽from the state comptroller鈥檚 office, so the claims in the lawsuit are not yet timely, the state argues.
As passed, the digital advertising tax would levy a tiered assessment based on a company鈥檚 annual digital advertising revenue in Maryland and its global gross revenues.
Companies that make more than $100 million in global gross revenues annually would pay a 2.5 percent tax on annual revenues from digital advertising in Maryland. That tax rate increases up to 10 percent for companies that make more than $15 billion globally.
础苍听聽concluded that Amazon, Google, Facebook and Microsoft would be taxed at the highest 10% rate, and Twitter, Snap and Pinterest would be taxed at a 5% rate.
Democrats who supported the聽聽during legislative debate said the tax would require large tech companies 鈥� with the power to store and manipulate users鈥� data and fuel misinformation campaigns 鈥� to support public civic infrastructure; money raised from the tax would be directed to the state鈥檚 multi-billion education reform plan.
In their initial filing, the U.S. Chamber, Internet Association and other groups complained that the new tax isn鈥檛 a tax at all, but an unacceptably high 鈥減unitive fee, penalty or fine鈥� because the state disapproves of the companies鈥� business models.
Because the law does not prohibit any of the companies from continuing to operate as usual, the payment required could not be construed as a penalty and is clearly a tax, the state argues.
Small companies in Maryland have also opposed the tax, arguing that large tech companies will pass the fee on to them.
During the 2021 General Assembly session, lawmakers passed an聽聽to prohibit tech companies from passing the tax down to advertisers through a fee or surcharge. The measure also delayed implementation of the bill by a year.
础听聽filed by Comcast in Anne Arundel County Circuit Court remains pending.
The Maryland law was the first of its kind to pass in the United States, but聽聽have considered similar measures in an effort to regulate tech companies鈥� use of personal data.
