Megaphone Social Media Concept
In the first of a two-episode series, Professor Young Ran (Christine) Kim of the University of Utah S.J. Quinney College of Law discusses her views on the federal lawsuit challenging Maryland’s digital advertising tax.
This transcript has been edited for length and clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: digital advertising taxes, part 1.
The digitalization of the economy has proved to be a tough challenge for tax systems, both globally and here in the United States. We’ve talked a lot about the OECD’s efforts to update the international tax system and to limit the impact of unilateral digital services taxes. But now, we’re going to explore the efforts by state governments here in the U.S. to establish digital advertising taxes.
The constitutionality and legality of these taxes remains an open question. Maryland, which enacted a digital advertising tax, is currently arguing this question in court.
To explore both sides of the issue, we’ll be dedicating the next two episodes of Tax Notes Talk to highlighting the different parties’ arguments for and against the tax.
But before we get to our first interview, I’m joined by Tax Notes reporter Lauren Loricchio for some background on the case. Lauren, welcome back to the podcast.
Lauren Loricchio: It’s great to be here.
David D. Stewart: To begin, could you start off with a brief overview of what digital advertising taxes do and how they differ from digital services taxes?
Lauren Loricchio: Sure. Maryland’s digital advertising tax is the first of its kind in the U.S. It’s modeled after the digital services taxes we’ve seen adopted in other countries. It’s a gross receipts tax that applies to companies with global annual gross revenues of at least $100 million and with digital ad revenue sourced to Maryland of $1 million or more. The tax rate ranges from 2.5% to 10%, depending on the amount of the company’s annual global gross revenues.
David D. Stewart: Could you give us some background on the case now about this Maryland tax?
Lauren Loricchio: Sure. First it’s important to note that there are two lawsuits we’ve been covering, that have been filed to challenge this tax. The first was filed by the U.S. Chamber of Commerce, the Internet Association, NetChoice, and the Computer and Communications Industry Association. That case is in federal court. It’s been backed by big tech companies like Google and Amazon. It’s the one we’ll be discussing in this podcast.
The other lawsuit was filed in Maryland circuit court by subsidiaries of Comcast and Verizon.
The plaintiffs in the federal case say the tax unfairly targets digital advertising revenue, and therefore is discriminatory under the Internet Tax Freedom Act. However, some supporters of this tax say digital advertising is different enough from traditional advertising to make it nondiscriminatory. The plaintiffs also argue that the tax violates the commerce and due process clauses of the U.S. Constitution.
David D. Stewart: Could you tell us about your first guest and what you talked about?
Lauren Loricchio: I spoke with Young Ran (Christine) Kim, an associate professor of law at the University of Utah. We discussed the Maryland digital advertising …….