Critics warned when Maryland adopted its tax on digital advertising that other states would soon follow, and that is precisely what has happened. The most serious threat to radio stations at the moment may be in Massachusetts, where five bills tied to digital advertising taxes have been introduced in the state legislature according to the Massachusetts Broadcasters Association. Some are more threatening than others.
The riskiest for radio is HD 3210, which would set the digital ad tax rate anywhere from 5% to 15%. It would only apply to a company with $50 million or more in gross revenue with $100,000 in digital revenue being the starting point for the tax to kick in. A company would also need to file quarterly with the state tax commissioner starting in January 2022.
“While broadcasters don't appear to be the target of this legislation, it appears that at least HD 3210 would affect some broadcasters,” MBA alerted members on Tuesday. “As written, several radio clusters and TV stations would be on the hook for hundreds of thousands of dollars in additional taxes – posing a major threat to localism in Massachusetts,” it said.
But the tax threshold would be lower under HD 3601. If passed, it will impose a five percent tax on any digital revenue if the company makes $25 million or more from digital advertising in the state each year. That digital-only threshold would make it less of a threat to radio or TV. Also of note, the legislation would earmark some of the tax proceeds for a Local Newspaper Trust Fund that would award grants to local newspapers around Massachusetts.
Yet another bill (HD 3558) would create a special commission to conduct a comprehensive study that would examine how to generate tax revenue from digital advertising that is displayed inside of Massachusetts by companies that generate over $100 million a year in global revenue.
It is not yet clear whether new Speaker of the House Ronald Mariano (D) is interested in any legislation that would raise taxes right now, according to ML Strategies, a government relations consulting group with offices in Boston. Bay State insiders say no action may occur until the fall because the Massachusetts Legislature’s two-year legislative session means bills advance more slowly than in other states.
All Eyes On Maryland
What is happening in Maryland could also impact the outcome. The Maryland Legislature in February month overrode a gubernatorial veto to adopt a tax that will initially hit the biggest players in digital such as Google, Facebook and Amazon. The Maryland law imposes a 2.5% tax on companies that have between $100 million and $1 billion in digital advertising revenue and a 10% tax on companies with more than $15 billion in digital ad revenue. Legislative leaders have said they plan to introduce follow-up legislation that would prohibit the digital ad tax from being extended to other media outlets, including radio and television.
The U.S. Chamber of Commerce joined with a trio of digital advocacy groups to file suit against the law. They argue Maryland legislators “disapprove of large digital advertising companies and intended to penalize them” with the new tax. The groups allege the tax violates federal law that bars discriminatory taxes on e-commerce and bans states from regulating interstate commerce.
Maryland and Massachusetts are not an isolated problem for anyone looking to stop ad taxes. The Washington Post said by its count there are at least 17 bills pending in ten states that would adopt tax on tech companies.