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Multistate: Maryland and Nebraska propose to tax digital advertising; other potential legislative changes discussed

Listen to a brief overview of state tax developments this week, including a multistate legislative update.

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Detailed Multistate Development

The current and former Presidents of the Maryland State Senate have teamed together to introduce Senate Bill 2, which would create a gross receipts tax on revenues derived from digital advertising services in the state.  Digital advertising services is defined as “advertisement services on a digital interface,” with any type of software, website, or application being considered as a digital interface.  Digital advertising revenues would be sourced to Maryland if the advertising appeared on a device (a) with an IP address indicating that the device is located in the state or (b) if the user of the device is known or reasonably suspected to be using the device in Maryland.  The tax would apply to companies that have (a) global annual gross revenues of $100 million or more and (b) digital advertising revenues sourced to Maryland of $1 million or more.  Using a four-tiered rate regime based on global revenue, the tax on the Maryland-derived digital advertising revenue would range from 2.5 percent up to 10 percent, with a requirement that every company expecting to be subject to the tax make quarterly estimated tax payments. 

On January 14th, The Nebraska Unicameral introduced a similar measure. Legislative Bill 989 would impose the sales tax on gross receipts received from digital advertisements.  The bill defines a digital advertisement as “an advertising message delivered over the Internet that markets or promotes a particular good, service, or political candidate or message.”  The bill provides no mechanism for the sourcing of digital advertisements to Nebraska.  The Nebraska legislature is also considering Legislative Bill 946 which would greatly expand the scope of what constitutes a taxable service.  Currently, only services enumerated in the sales tax statute are taxable (e.g., building maintenance and installation and repair of tangible personal property).  Legislative Bill 946 would remove most specific enumerations and replace them with a provision that presumes all services are taxable unless a specific exemption applies. Services are defined broadly to include activities engaged in for other persons for consideration (other than services provided to an employer as an employee) that involve predominantly the performance of a service, as distinguished from selling or leasing tangible personal property. Service transactions would be sourced to the place of “first use.”  The bill would also remove the existing exemption for services that become a component part of a service that is sold at retail. The bill would be effective October 1, 2021. At that time, the state sales tax rate would be reduced from 5.5 percent to 4.0 percent; the rate would be adjusted over the next four quarters so that revenues from the sales tax are equivalent to what would have been generated had the bill not been enacted. Please contact Sarika Bakshi at 703-286-8467 with questions on the Maryland legislation and Jese Riddle at 402-742-3219 with questions on the Nebraska bills.

In other news, Iowa Governor Kim Reynolds proposed in her Condition of the State address to increase the state sales tax rate from 6 to 7 percent and use the proceeds primarily to offset an average 10 percent reduction in state income taxes. The Georgia General Assembly has sent Governor Kemp House Bill 276, a carryover bill from last year that would impose sales and use tax collection obligations on marketplace facilitators effective April 1, 2020. The D.C. City Council is considering a controversial proposal to extend the District’s False Claims Act to cover certain matters involving income and sales taxes.

Finally, Kansas Governor Laura Kelly is recommending that the state tax code be amended to impose the sales tax on various digital products, applications and services as well as online streaming services. She is also proposing enactment of a measure to require collection of sales tax by marketplace facilitators. Please stay tuned to TWIST for future legislative changes. 

 

This Week's Developments

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Featured Speaker

Sarah McGahan

Sarah McGahan

Director, State & Local Tax, KPMG US