Maryland: First State to Implement Digital Advertising Gross Revenues Tax

February 2021

On February 12, 2021, the Maryland General Assembly achieved the necessary three-fifths vote in both chambers to override the governor’s veto of HB 732, a bill that contains provisions to introduce a gross revenues tax on digital advertising services. Maryland is the first state to implement this type of tax, which applies to companies with gross revenues from all sources totaling $100 million dollars or more. The tax is applicable to tax years beginning after December 31, 2020.
 

Details

The new law imposes an annual tax on gross revenues from the performance of digital advertising services attributable to Maryland. Digital advertising services are statutorily defined as “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.”  A “digital interface” is “any type of software, including a website, part of a website, or application that a user is able to access.” 

The tax rate ranges from 2.5% to 10%, depending on the provider’s global annual gross revenues:
  • 2.5% of the assessable base for a person with global annual gross revenues of $100 million through $1 billion.
  • 5% of the assessable base for a person with global annual gross revenues greater than $1 billion through $5 billion.
  • 7.5% of the assessable base for a person with global annual gross revenues greater than $5 billion through $15 billion.
  • 10% of the assessable base for a person with global annual gross revenues greater than $15 billion.
For example, assume Company A has $1 billion in annual gross revenue and $100 million of that amount is attributable to the performance of digital advertising services in Maryland. The 2.5% tax rate applies, and the total tax due is $2.5 million.

The digital advertising services tax filing is due on an annual basis, beginning April 15, 2022 (although the state has not yet created forms. Any company that has annual gross revenues derived from digital advertising services in Maryland of at least $1 million must file a return. Quarterly filing/payment obligations also apply, with the Q1 2021  estimate due by April 15, 2021. Penalty assessments may be made for underpaid tax and fines/imprisonment can apply for willfully omitting to pay the tax.