Internet Taxation 02/11/2021

Letter to Governor Hogan on Legal flaws in MD HB 732 – Digital Advertising Tax

NetChoice
Steve DelBianco President and CEO

February 10, 2021

 

Governor Hogan, Attorney General Frosh, Comptroller Franchot, and Members of the General Assembly:

We would like to share a legal analysis of Maryland House Bill 732 prepared by NetChoice counsel (attached). This analysis identifies severe legal flaws in HB 732, which would expose Maryland citizens to expensive and wasteful legal proceedings.

As detailed in the attached, HB 732 includes a facial violation of the federal Internet Tax Freedom Act (“ITFA”), 47 U.S.C. § 151. ITFA explicitly prohibits discriminatory taxes on internet services and transactions. HB 732 is facially discriminatory since it imposes this new tax only on digital advertising, and not on other forms of advertising such as billboards, magazines, newspapers, radio, and television.

In addition, HB 732 would violate the First Amendment of the US Constitution. The legislation would prohibit internet services from displaying a line-item for this new tax when billing advertisers — most likely to avoid public scrutiny about the new tax. HB 732 is therefore a government limitation on free speech.

It seems clear from the attached memo that an action to enjoin HB 732 is likely to prevail, and that anticipated tax revenues are not likely to be realized. With that, it would be unsound fiscal policy for the state to count on the estimated $250 million in annual revenue the tax is purported to raise. Relying on projected revenue from this bill in Maryland’s budget will leave the state with a deep budget deficit and force cuts in services.

And while it is unlikely that HB 732 would survive legal challenges, the resulting tax burden would fall on many Maryland businesses who are now advertising online to find new customers, at a time when both businesses and customers are struggling under COVID-based restrictions.

Either way, HB 732 is wrong for Maryland.

We therefore encourage Comptroller Franchot and Attorney General Frosh to responsibly remind the General Assembly to avoid relying on any new tax revenue from HB 732, since it is very likely to be enjoined and ultimately overturned by the courts.

Accordingly, we strongly recommend that the General Assembly sustain the Governor’s veto.

 

Sincerely,

Steve DelBianco

President & CEO

NetChoice

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