A New Law Shows Why Digital Ad Taxes Present Legal and Logistical Challenges

State governments looking to boost revenues have started to consider “digital ad” taxes, with politicians saying it’s time for big tech companies to pay their fair share. The idea is that, if Google and Facebook are making money off advertisements served to internet users in Maryland or Nebraska or New York, those states should be able to reap some tax revenues.

But an attempt to implement such a law in Maryland demonstrates practical and logistical problems, and experts say that what may sound like a good idea on paper will end up hurting small businesses—and therefore residents of the states—in practice. 

Last month, Maryland’s legislature overrode a veto from Gov. Larry Hogan to become the first state to pass such a law. The state still faces an arduous journey to implementation, as several industry and tech groups have already signed on to a lawsuit to overturn it. 

The tax is designed to target companies like Google, Facebook, and others and is based on the amount of revenue a company makes off of digital ads inside the state of Maryland. The percentage of the tax a company will pay is based on a company’s global revenue. If a company makes from $100 million to $1 billion a year, that company will pay a 2.5 percent tax. And companies that make more than $15 billion a year will pay a 10 percent tax.