February 25, 2021

Maryland Enacts Digital Ad Tax 

Despite a vigorous grassroots effort by AAF, AAF Baltimore, AAF Greater Frederick and many others, earlier in February both houses of the Maryland General Assembly voted to override Governor Larry Hogan’s (R) veto of the digital advertising tax. The bill will become law on March 14, 2021, but will apply retroactively to the beginning of the year.

The law will impose tax on gross revenues earned from digital advertising services in Maryland. While the digital advertising services tax only applies to those with global annual gross revenues or $100 million or more, AAF believes it will have a negative impact on Maryland companies and consumers and others who do business in the state.

A lawsuit has been filed in federal court seeking to invalidate the tax for violations of federal law and the U.S. Constitution. The suit alleges the Maryland digital advertising services tax:

  1. Is preempted by the federal Internet Tax Freedom Act, which prohibits states from imposing discriminatory taxes on electronic commerce;
  2. Regulates and burdens out-of-state commerce and penalizes extraterritorial conduct in violation of the Commerce Clause and Due Process Clause of the Fourteenth Amendment of the U.S. Constitution;
  3. Interferes with the ability of the federal government to speak with one voice in violation of the foreign Commerce Clause;
  4. Is void for vagueness under the Due Process Clause of the Fourteenth Amendment by inviting arbitrary enforcement; and
  5. Violates the First Amendment by imposing a burdens on protected speech that are not essential to the achievement of a substantial government interest.

AAF will monitor the progress of the suit and support any efforts to overturn the digital ad tax.

Lawmakers in other states, including Indiana, Montana and Oregon have discussed similar proposals but have not yet moved forward. We suspect many lawmakers in other states will wait for a resolution of the Maryland suit before deciding whether to pursue a digital advertising tax.

Nebraska Looks at Taxing Advertising and Other Services
A Nebraska State legislator introduced legislation to lower the sales tax rate and expand the base to include all services, including advertising. The bill is similar to one introduced last year. Like the previous bill, the measure was the subject of a February hearing, but received broad opposition and is not expected to be approved.

Many of AAF’s Nebraska members responded to an alert by contacting lawmakers in opposition to the bill.

State Privacy Update

The Virginia Consumer Data Protection Act has passed both Houses of the state’s legislature and is expected to be signed into law soon by Governor Ralph Northam (D). The law, supported by Amazon and Microsoft, will give consumers the right to opt out of the use of non-sensitive data for targeted advertising, and requires companies to obtain consumers' affirmative consent before processing “sensitive” data—including information about race, religious beliefs, health, sexual orientation or immigration status, as well as precise geolocation information and some biometric data. AAF provided comments to lawmakers on the proposed bill.

AAF has provided comments on privacy proposals in Hawaii, Montana, New Hampshire and Oklahoma, and urged our clubs in Hawaii and Oklahoma to contact their lawmakers about the proposals. We are also monitoring legislation that has been introduced in Alabama, Connecticut, Florida, Minnesota, New York and Utah and will weigh in when it is most legislatively and politically appropriate to do so.

While AAF does not support state privacy legislation, we will comment on some of the more harmful aspects of those bills. AAF believes the multiplicity and inconsistency of proposed state privacy bills further emphasizes the need for a national privacy law, such as the one proposed by the AAF supported Privacy For America.