Maryland Digital Tax Sponsor Proposes Law Banning the Tax From Being Passed Forward

Maryland legislators may today override Governor Hogan’s veto of a massive digital advertising tax, but its key sponsor is readying follow-up legislation should it be enacted and survive daunting legal challenges.

Maryland Senate President Bill Ferguson (D), who introduced the digital tax last year, introduced a bill (S.B. 787) that would ban the tax from being passed forward to purchasers of advertising. The bill probably is the result of feedback from Maryland businesses that buy digital advertising--which is essentially all Maryland businesses--that a hefty tax on those selling advertising in Maryland will drive up prices for buyers of Maryland advertising.

While all business taxes are "paid" by the business, businesses are ultimately a pass through. The taxes they pay come out of some combination of reduced investment or dividends, lower wages, and higher prices. Banning those things from happening is like banning gravity. Banning companies from listing the taxes they pay on invoices may also be itself a First Amendment violation.

The language bans "directly" passing it on, so the result would be the tax being embedded into the price. Most states (including Maryland!) have transparency laws requiring sales taxes to be the opposite: you have to separately state it, and cannot include it in the price. What Senator Ferguson’s bill won’t be able to do is change the laws of economics so that a $250 million tax on activity in Maryland somehow doesn’t come out of the Maryland economy.