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Tax Law

Maryland Senate adds additional amendments to digital advertising tax bill

Earlier today, the Maryland Senate considered Senate Bill 2, which would impose a new tax on digital advertising services. The Senate retained the Budget and Taxation Committee amendments that revise the sourcing provisions. However, the amendments provide authority to the Maryland Comptroller of the Treasury to determine when gross revenues are derived from digital advertising services in Maryland. The Senate also added additional amendments to SB 2, which appears to combine SB 2 with two other significant (and unrelated) tax bills – the combined reporting bill for corporate income tax purposes applicable only to retail trade and food services corporations (separately proposed in SB 24 i.e., the “Small Business Fairness Act”) and a proposal that, among other things, would increase the tobacco tax rate and impose a tax on electric smoking devices (separately proposed in SB 3).

SB 2 will next be voted on by the full Maryland Senate on second and third reading. We will likely see movement in the near future as Maryland’s crossover deadline of March 16th is approaching. Maryland lawmakers generally aim to have legislation they intend to pass clear the chamber of origin and move to the other chamber by the crossover date. If SB 2 clears both houses, the bill will be sent to Governor Larry Hogan who is expected to veto it. The General Assembly could override the Governor’s veto with a 3/5 majority vote of the elected members of each house. If enacted, the digital advertising tax is expected to face a bevy of legal challenges.