april2021 - 29

FEATURE

States Start Taxing Digital Advertising
By Gail Cole

AS MARYLAND PREPARES to enforce the first digital advertising tax in the nation, Massachusetts and several other
states are pursuing digital advertising taxes of their own.
MASSACHUSETTS: FOUR
FLAVORS OF DIGITAL TAX
At least four different digital
advertising tax bills have been
introduced in Massachusetts.
House Docket 3210 would tax
annual gross revenues derived from
digital advertising services in the
commonwealth (i.e., ads appearing
on a device known or reasonably
presumed to be used in Massachusetts, or when the Internet Protocol
address indicates the device is in
Massachusetts).
" Digital advertising services "
means " advertising services on
a digital interface, " and includes
banner advertising; search engine
advertising; interstitial advertising;
promoted, boosted, or sponsored
content; and other comparable
advertising services. " Digital interface " is defined as any type of software a user can access, including a
website or part of a website, or an
application or part of an application.
The digital advertising tax
would apply to a person (aka, an
entity) with annual gross revenues
derived from digital advertising
services in the commonwealth of
at least $100,000, at the following
tax rates:
* 5% of the assessable base for a
person with annual gross revenues
of $50,000,000 through $100,000,000
* 10% of the assessable base for a
person with annual gross revenues
of $100,000,001 through $200,000,000
* 15% of the assessable base for a
person with annual gross revenues
exceeding $200,000,001
The tax would take effect January 1, 2022.

House Docket 3601 would create a 5% excise tax on the sale of
digital advertising services within
the commonwealth. It would apply
to persons with more than $25
million in annual revenue from
digital advertising services in Massachusetts (i.e., when the ads are
" received on a user's device having
an IP address located within the
commonwealth " ).
Revenue generated by the tax
would help finance the Local Newspaper Trust Fund. No effective date
was provided in the initial version
of the bill.
House Docket 3522 would tax
online advertising. As of this writing, the draft is still being finalized
by House Counsel.
Finally, House Docket 3558
would establish a special commission to study the effects of a tax on
digital advertising displayed in Massachusetts by companies generating
over $100 million annually in global
revenue. By February 15, 2022, the
commission would present a final
report that includes:
* Best practices of other states

* Massachusetts tax revenue changes
resulting from the proposed tax
revisions
* Tax rates necessary to fund investment in public infrastructure and
programming, and ensure economic
competitiveness
* Total amount of taxes currently paid
by the identified companies

CAN MASSACHUSETTS
(OR ANY OTHER STATE)
STOMACH A DIGITAL
ADVERTISING TAX?
Although the above bills have been
introduced for consideration, they're
unlikely to gain much traction this
session.
Massachusetts Governor Charlie
Baker isn't interested in raising
taxes. He's repeatedly emphasized
the need to encourage economic
growth and face the challenges
resulting from COVID-19 " without
raising taxes on residents. "
House Speaker Ronald Mariano
echoes that sentiment. Although
he's concerned Massachusetts
may be " a little short " on revenue,
he said in February that " taxes
are not on the table. We have no
intention of raising taxes. " Senate
President Karen Spilka also hopes
to avoid raising taxes, although she's
acknowledged there could be a need

to do so: " We have to see what happens with COVID. "
There are certainly less contentious ways to increase tax revenue
than a tax on digital advertising.
Maryland's new tax came under
fire within days of passing. Amazon,
Facebook, the U.S. Chamber of Commerce, and other affected parties
are suing Maryland and seeking to
block what they're calling " a punitive assault on digital, but not print,
advertising. It is illegal in myriad
ways and should be declared unlawful and enjoined. " The complaint can
be found here.
Meanwhile, Maryland lawmakers are looking favorably upon a bill
(SB 787) that would exempt digital
interfaces owned or operated by
a broadcast or news media entity
from the new digital advertising tax.
This could make the discriminatory
aspects of the tax worse, as the
same type of service would be taxed
differently depending on the type of
business engaged in it.
SB 787 would also push the start
of the digital advertising tax to January 1, 2022, and prohibit taxpayers
from directly passing on the cost of
the tax to certain customers.
Digital advertising taxes have
been introduced in Connecticut,
Indiana, Montana, New York,
and Washington, though the
Montana measure has already
been tabled. If any of the above
bills are adopted, you can read
about it on the Avalara blog. ■
Gail Cole is a Senior Writer at
Avalara. She's on a mission
to uncover unusual tax facts
and make complex laws and
legislation more digestible
for accounting and business
professionals.

APRIL 2021 ■

www.CPAPracticeAdvisor.com

http://www.CPAPracticeAdvisor.com

april2021

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