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Digital advertising sales tax: changing legislation

by Sarah Craig December 15, 2021

Over the last year, we’ve been keeping close tabs on some important developments around the taxation of digital advertising and the sale of personal data. There have been multiple proposals across countries and states within the U.S. that have been met with a lot of pushback and ginned up considerable controversy. Let’s dig in. 

Is this even legal? 

That’s what is up for debate. Last year, Maryland became the first state to introduce legislation that would tax the sales of digital advertising. Since then, more states have proposed similar laws, nine to be exact. But most of these proposals are on the back burner as they await to see what happens in Maryland. 

What did happened in Maryland? Maryland’s legislation (H.B. 732) was passed after overriding a veto of Governor Larry Hogan. While it did pass, there is some pending litigation that has pushed the law’s effective date to after December 31, 2021. Opponents have made claims that this new law violates the Internet Tax Freedom Act and the U.S. Constitution Commerce Clause. 

The issue for most opponents of the tax lies in the grey areas. There seems to be a concern with first defining what a digital advertisement is. We’ve all seen the pop-up ads online and those are easy to point to and say, “that’s a digital ad”. But what about a promoted social media post? What about content syndication or an email blast? Are those considered digital ads? Especially as the digital world becomes more sophisticated, it could become more and more difficult to define digital advertisement. We’ll be keeping an eye on Maryland and will update this blog accordingly. 

Social media advertisements 

In addition to the Maryland digital advertising tax, there are other proposals popping up that would tax the sale of personal data, specifically for social media companies. For example, in Indiana, there is a proposed law, H.B. 1572, that would require an annual registration fee for social media companies that have an economic benefit from personal data that the site’s users share with the company. This law would apply to social media companies that maintain a public platform, have the economic benefit, and more than one million active Indiana users.

Interestingly, Oregon is another state that has joined this conversation. Oregon, which is one of the four states without a state sales tax, has proposed a gross receipts tax for businesses who sell personal information in Oregon, or individuals who have an IP address within the state. 

We’ve been seeing social media companies in the news more and more lately, as the government tries to add more regulation to the industry. This recent legislation could be just the beginning.

Going forward

We’ll be monitoring the situation in Maryland and across the other states that have proposed similar legislation. If the new Maryland law goes into effect next year, we predict other states will have an easier time getting their digital advertising bills passed. This could have big implications for companies across industries, and we’ll keep you informed. Subscribe to our sales tax blog to ensure you don’t miss out on an update. 

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