Tech lobbying groups file lawsuit against nation’s first digital advertising tax

Maryland lawmakers have enacted the nation’s first tax on digital advertising sold by tech giants like Facebook and Google – and it hasn’t taken long for lobbying groups to unleash a legal battle against it.

On Thursday, groups including the U.S. Chamber of Commerce, the Internet Association, NetChoice and the Computer and Communications Industry Association filed a lawsuit arguing that the law, passed in Maryland only a week ago, is “deeply flawed” and “unconstitutional.”

The lawsuit is the first sign of what will likely become a larger legal fight over whether states and communities should tax tech companies that make billions of dollars in digital advertising revenue. Last year, Facebook earned $84 billion in digital advertising and Google $147 billion.

The Maryland bill, HB 732, taxes digital advertising services including banner advertising and search engine advertising on websites or software. It is expected to generate some $250 million in revenue within the first year.

The legislation was originally passed in March 2020 with the goal of funding public school reforms. But in May 2020, amid the COVID-19 pandemic, Republican Gov. Larry Hogan vetoed the bill, noting that it “would raise taxes and fees on Marylanders at a time when many are already out of work and financially struggling.” Last week, both houses of the Maryland legislature voted to override the governor’s veto.

Since then, lobbying groups have argued that the tax would harm smaller businesses and jobs in the state.

“It’s unfortunate that the Maryland General Assembly has decided to penalize a handful of out-of-state companies with this discriminatory law,” the Internet Association, which was founded by Google, Facebook, Amazon and eBay, said in a statement. “This is a case of legislative overreach, punishing an industry that supports over one hundred thousand jobs in Maryland and contributes tens of billions of dollars to its economy each year.”

Maryland State Sen. Bill Ferguson, who wrote the tax law, countered that tech companies “have grown exponentially by availing themselves of the privileges of states… and been free riders to Maryland’s investments in our civic infrastructure, while contributing nothing to the future of Maryland’s residents.”