Like Rhode Island, Maryland has ambitious public-education goals, and Google and Facebook look like gold mines. But there are complications.
Leading Maryland lawmakers seeking a way to help pay for a $4 billion, 10-year education plan came up with what they consider an innovative idea about where to get the cash: deep-pocketed internet companies.
The Democratic proposal would tax Facebook and Google for every ad the companies run on the computer screens of Maryland residents visiting their sites. If passed, the plan would make the Old Line State the first in the nation to raise revenue by taxing online advertising.
“Massive technology corporations have ballooned in size and influence over the last two decades,” Maryland Senate President Bill Ferguson, a Democrat, wrote in an email to Stateline. “This legislation starts to make sure that these corporations pay their fair share in contributing to building our state’s core educational institutions.”
A Nebraska bill would sweep internet ads into overall sales tax. New York policymakers would take a different approach to the same goal: taxing internet companies on the personal information they collect from any state resident who visits their sites. Many other states may follow suit if they see a new source of money opening to pay for needed services.
Supporters of the bills say it’s time for wealthy internet companies to pay a larger share of taxes, especially when companies are profiting off residents’ time and private information. But opponents argue the measures are unfair, impractical and bad for the economy.
Massive amounts of money are at stake in the fights. Facebook and Google are expected to account for about half of the $385 billion global digital ad market in 2020, according to eMarketer, a firm that tracks digital advertising.
Facebook alone could make between $38 million and $76 million in a one-time sale of users’ data, according to an estimate by Investopedia, a financial advice website.
Ulrik Boesen, a senior policy analyst at the Tax Foundation, which argues for lower, more broadly based taxes, said any internet advertising tax that targets only large entities is too narrow and that the burden should be more widely shared.
And bills that target data collection might turn out to be even worse, he argued, if states use definitions that are too loose.
“Almost all businesses would be in some way liable,” he said, “because collecting phone numbers from your customers or having a loyalty program … and using that to generate a profit could fall under the non-definition of data.”
Separately, Maryland legislative leaders last week introduced an alternate way of paying for the education plan — a broad expansion of sales taxes to many services to raise an estimated $2.6 billion. The sales tax rate would drop from 6% to 5%, but since it would apply to a broader range of services, it would raise more money.
Maryland Gov. Larry Hogan, a Republican, condemned the proposed tax expansion. “It’s not ever going to happen while I’m governor. I can promise you,” Hogan said.
The Maryland internet bill would assess up to a 10% excise tax on revenue that large companies earn from selling digital ads that target Maryland IP addresses. Firms with less than $100 million in annual ad revenue would be exempt, meaning that the bill would affect only the largest internet companies, such as Google and Facebook.
The Maryland bill is estimated by sponsors to raise $250 million a year.
But opponents say the measure is unfair to single out online ads.
“As it’s written today, it applies to only one type of media — digital — not our Baltimore Sun friends or TV,” said opponent state Sen. Andrew Serafini, a Republican, in a phone interview. “You can’t just pick one form of advertising.”
Opponents also say that the legislation would be complicated, noting it took years and a 2018 U.S. Supreme Court ruling in the Wayfair case to allow states to collect sales taxes from all online purchases. States still must write and put into effect the statutes and rules to make that happen.
“The proponents say the Wayfair decision took many years to work out,” Serafini added. “I’m concerned that the children in kindergarten today might be high school graduates before this gets worked out.”
The Internet Association, a national lobbying group that represents online businesses including Facebook, Google, eBay and many others, said in a letter to the Maryland legislature that the tax would be “discriminatory and punitive.” The letter, from Senior Vice President Robert Callahan, also maintained that the bill would “likely” violate the federal Permanent Internet Tax Freedom Act.
That law, signed in 2016, prohibits states or the federal government from imposing “discriminatory taxes on electronic commerce.”
Facebook referred questions to the association. Google did not respond to requests for comment.