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Maryland General Assembly Sends Digital Advertising Tax to Governor; Nearly Identical Bill Pending in New York

With gatherings larger than 50 people banned and the State House cleared of visitors, on March 18, 2020, Maryland’s legislature approved HB 732, which contains a massive new punitive tax on digital advertising services, and sent it to Governor Larry Hogan (R) for his consideration. Digital Advertising Gross Revenues Tax Contradicting the clear legislative trend in the advertising space to exempt the facilitation of advertising services (but tax the consumer transactions that may result therefrom), HB 732 would impose a new, one-of-a-kind tax on the annual gross revenue of digital advertising services that are deemed to be provided in the State. The proposed tax contains a tiered tax rate structure (arbitrarily determined based on the advertising service provider’s global annual gross revenues) that would allow for a tax rate of up to a whopping 10% of the annual gross revenue in the State derived from digital advertising services. As passed, HB 732 would take...

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BREAKING NEWS: New York Considers 5% Gross Receipts Tax on Almost Every Corporation

On January 21, A. 9112 was introduced in the New York Assembly. An identical Senate companion bill, S. 6102, has been referred to the Senate Budget & Revenues Committee after being introduced in May 2019. The bills would impose an additional 5% tax on the gross income of “every corporation which derives income from the data individuals of this state share with such corporations.” The bills do not provide further detail or limitation on the scope of the proposed new imposition language. The bills would also establish a six-member Data Fund Board, to invest the tax revenue collected and distribute net earnings “to each taxpayer of the state” in a manner determined by the Board. If enacted without amendment, the bills would take effect 180 days after being signed into law. As written, the proposed New York tax would unconstitutionally apply to all income worldwide earned by a company deriving income from data from New Yorkers. A state tax on a multistate...

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Vermont Bill Would Repeal Cloud Software Tax Exemption

On January 16, a bill (H. 756) was introduced in the Vermont Assembly that would repeal the sales and use tax exemption for remotely accessed prewritten computer software. If enacted as introduced, the exemption would no longer protect Vermont taxpayers from this legally suspect tax beginning July 1, 2020. This is not the first time the Vermont Legislature has considered the issue of taxing cloud software. After the Department of Taxes administratively issued guidance interpreting the sales tax to apply to all prewritten software (including cloud-based software) in 2010, legislative actions were taken to curtail this administrative overreach—including a 2012 temporary moratorium and the aforementioned 2015 exemption—to preclude the imposition of sales tax on the mere accessing of prewritten computer software. Practice Note: With the introduction of H. 756, Vermont is at risk of reverting back to the dark ages of cloud tax uncertainty that existed throughout...

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New Trend Developing? Another Digital Advertising Tax Proposal

On January 14, LB 989 was introduced in the Nebraska Legislature, which would impose sales and use tax on “the retail sale of digital advertisements.” The bill defines “digital advertisement” as “an advertising message delivered over the Internet that markets or promotes a particular good, service, or political candidate or message” (see pages 5-6 of the bill). The definition is a sweeping one, but the exact scope is unclear as the terms used are not further defined. It is also unclear how a taxable digital advertising transaction would be sourced if the proposed legislation is enacted. The digital advertising tax proposed in the bill would have an effective date of October 1, 2020. Nebraska’s state sales tax rate is 5.5%, with local sales taxes up to an additional 2%. Similar to Maryland’s SB 2 proposal, because Nebraska would tax digital advertising but not tax non-digital advertising, the proposed tax raises a series of legal concerns (above and beyond the...

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BREAKING NEWS: Maryland Proposes (French) Tax on Advertising – Digital Platforms and Advertisers Beware!

On January 8, SB 2 was introduced to establish a new digital advertising gross revenue tax of up to 10% on “annual gross revenues of a person derived from digital advertising services in the state.” This uncharted new tax would make Maryland the first state or locality in the United States to impose a targeted tax on the gross revenue of digital advertising services. The bill defines “in the state” as appearing on the user’s device located in the state (determined based on either the user’s IP address or reasonable knowledge). “Digital advertising services” is 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.” The definition uses the word “includes” rather than “means,” enabling the definition to be read even more broadly. “Digital interface” is defined as “any type of software, including a...

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Kentucky to Begin Taxing Video Streaming Services under Telecom Tax

Legislators in Frankfort added a new “video streaming service” tax to the omnibus tax bill (HB 354) as part of a closed-door conference committee process before the bill was hastily passed in the House and Senate. Notably, the new video streaming service tax was not previously raised or discussed as part of HB 354 (or any other Kentucky legislation) before it was included in the final conference committee report that passed the General Assembly in March. Specifically, as passed by the General Assembly, HB 354 will add “video streaming services” to the definition of “multichannel video programming service” subject to the telecom excise tax.  This is the same tax imposition that the Department of Revenue argued applied to video streaming services in the Netflix litigation—an argument that was rejected by the courts in Kentucky and then subsequently settled on appeal. Under existing law, Kentucky taxes “digital property” under the sales and use tax. The term is...

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Nevada Bill Proposes Broad New Excise Tax on Sales of Digital Goods and Services

A bill (AB 447) was introduced on March 25th in the Nevada Assembly that would create a broad new excise tax on the retail sale of “specified digital products” to Nevada customers. Instead of expanding the scope of Nevada’s sales and use tax, the bill would enact an entirely new chapter of the Revenue and Taxation Title imposing this new excise tax. Currently, sales of digital products, including electronic transfers of computer software, are not subject to the sales and use tax. Thus, the new proposal represents a major policy departure from the status quo. The introduced bill also would create inconsistencies with the Streamlined Sales and Use Tax Agreement (SSUTA)—to which Nevada is a member state—and contains many potential violations of federal law under the Permanent Internet Tax Freedom Act (PITFA) that do not appear to have been carefully considered. Broad New Tax Specifically, the bill would impose the new excise tax “upon the retail sale of...

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