Maryland is the first US state to endorse a tax law that requires Facebook and Google to pay for digital advertising. But Internet groups want to challenge and strike down the “punitive assault” in federal court.
A federal lawsuit filed Thursday in the US District Court of Baltimore alleges that the law is illegal. It contends that the law oversteps on the Internet Tax Freedom Act. And the latter bars the discrimination of electronic commerce, among other laws.
The groups seek a ruling to stop the law from execution. The petitioners say their lawsuit will notify the other states. They will face similar challenges if they follow Maryland’s footsteps.
“It shouldn’t be a surprise that enacting this kind of law is really nothing but a one-way ticket to the courthouse, which is an unfortunate use of anyone’s resources,” said Michael Kimberly, the chief counsel of the petitioners.
The complainants include the US Chamber of Commerce, the Computer and Communications Industry Association, the Internet Association, and NetChoice.
How it all started
The Democrat-controlled Maryland General Assembly overruled last week Republican Gov. Larry Hogan’s prohibition of the law last year.
Supporters say the law restructures the state’s tax system. And it asks for thriving Big Tech companies to pay their fair share.
It would evaluate the tax on revenues that companies make on digital ads seen in Maryland. They say the assessed $250 million in annual revenues would pay for education.
Maryland Senate President and Baltimore Democrat Bill Ferguson sponsored the legislation in 2020. He said they expected the lawsuit. But he expressed his disappointment in seeing tech companies spend millions on expensive attorneys rather than pay their fair share.
“For two decades, these companies have grown exponentially by availing themselves of the privileges of states, benefited from the aggressive uncompensated collection of personal and private information about Maryland’s residents, and been free riders to Maryland’s investments in our civic infrastructure,” says Ferguson.
The law would tax the revenue that companies make on digital ads shown in Maryland. Tax rates are based on the global annual gross revenues for companies with over $100 million worldwide.
The tax rate is as follows:
- 2.5 percent for a gross annual revenue of $100 million
- 5 percent for revenues of $1 billion or more
- 7.5 percent for revenues of $5 billion or more
- 10 percent for revenues of $15 billion or more