Multistate: Digital Advertising Legislation Update

Maryland Senate Bill 787, which has passed the Senate and been set for Hearing in the House Ways and Means Committee on March 25, 2021, would extend the effective date of the state’s digital advertising tax to tax years beginning after December 31, 2021.  The tax originally became effective for tax years beginning after December 31, 2020.  Senate Bill 787 would also redefine “digital advertising services” to exclude services of broadcast entities and news media entities. The bill defines “broadcast entity” to include “any entity primarily engaged in the business of operating a broadcast television or radio station.” “News media entity” is defined to include “any entity primarily engaged in the business of newsgathering, reporting, or publishing articles or commentary about news, current events, culture, or other matters of public interest.” The definition specifically excludes entities that primarily republish third-party content. The bill prohibits taxpayers subject to the digital advertising tax from directly passing the cost of the tax on to their customers by means of a separate fee, surcharge, or line-item.

In other state tax digital advertising news, bills were recently proposed in Texas and West Virginia. In Texas House Bill 4467 and in West Virginia Senate Bill 605 have recently been filed; both bills would impose new taxes on the annual gross revenues derived from digital advertising services. The bills are almost identical to the Maryland digital advertising tax legislation. They define digital advertising services to mean advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, as well as comparable advertising services. The Texas bill directs the Comptroller to adopt rules regarding reporting and estimated tax payment requirements, whereas the West Virginia legislation specifies annual reporting and quarterly estimated tax requirements. As with the Maryland law, companies with (a) global annual gross revenues of $100 million or more and (b) digital advertising revenues sourced to the state of $1 million or more, would be subject to the tax.  Both taxes would apply a four-tiered rate regime based on global revenue, the tax rate would range from 2.5 percent up to 10 percent for taxpayers with greater than $15 billion in global annual revenue. Please stay tuned to TWIST for future updates on all these proposals.