Big online companies will pay rates up to 10%

The Maryland Senate on Friday voted 29-17 to override Republican Gov. Larry Hogan's veto of a law that imposes taxes on companies that have more than $100M in digital ad revenue, thus enacting the first-of-its-kind law.

Companies' tax rates will range from 2.5% to 10%, according to global revenue, and will be applied to gross revenue from digital ad sales within Maryland.

"Digital ads" are defined as any "advertisement services on a digital interface" including banner ads, search engine advertising, interstitial advertising and "comparable advertising services."

Companies earning $100M to $1B in ad revenue will be taxed at 2.5%, those with revenues over $15B at 10%.

Earlier drafts of the tax bill specified that "sales within Maryland" would be determined on the basis of either the user's IP address, or "knowledge or reasonable suspicion" that the user employed the device used to receive ads while within the state. But those provisions were dropped from the final version, so how Maryland ad sales will be identified remains unclear.

Sen. James Rosapepe, a Democrat, said the new law aims to modernize Maryland's tax system and make sure that Big Tech companies pay their fair share.

If in fact implemented, the new tax is expected to raise $250M in its first year, with the proceeds going to fund Maryland schools.

The Maryland business community and internet and advertising industry groups including the Association of National Advertisers (ANA) and the Internet Association have voiced objections to the new law on the basis that it will harm small businesses and nonprofits in Maryland that will ultimately be paying the cost.

ANA argues that the law violates the federal Internet Tax Freedom Act and that it's unconstitutional because it attempts to regulate activity occurring outside Maryland.

How will this play out? Stay tuned for updates.