Maryland Attorney General’s Office Says Taxpayers May Notify Customers of Fee Increase Resulting from Digital Advertising Tax | McDermott Will & Emery
In a brief filed April 29, 2022, the Maryland Attorney General’s Office (Attorney General) agreed that the state’s digital advertising tax “transmission ban” “does not purport to impose a restriction on what that the taxpayer can tell the customer, or someone else, about “the increased billing fee because of the tax”.
Last year, Maryland lawmakers have enacted a one-of-a-kind digital ad tax on annual gross revenue from the provision of digital advertising services. The tax only applies to companies with annual gross revenues of $100 million or more. Shortly thereafter, Maryland lawmakers added a transmission ban, which provides that “[a] a person who derives gross revenue from digital advertising services. . . cannot directly pass on the cost of the [tax] to a customer who purchases the digital advertising services through a fee, surcharge or separate line. »
In litigation brought by McDermott Will & Emery in federal court in Maryland, several leading trade associations have challenged the transmission ban on the grounds that it violates the First Amendment to the US Constitution by regulating how sellers can disclose their prices on invoices, billing statements, and more. However, in a brief seeking dismissal of the litigation, the Attorney General asserted that the transmission ban does not regulate speech, but only prohibits “conduct consisting in directly transmitting to a client” the tax burden.
Emphasizing what should be the limited scope of the transmission ban, the Attorney General states by way of “example” that if a “taxpayer wishes to inform [a] customer that [an] the fees charged are higher than they would otherwise be due to the imposition of the digital advertising tax, the taxpayer is free to communicate that or any other message.” (Emphasis added). Further, the Attorney General agrees that “if the taxpayer wants to use the bill as an opportunity to engage in political discourse, the taxpayer is free to express his displeasure with the tax and identify who bears political responsibility for [the] new tax.
Consistent with this position, the Attorney General does not dispute that the digital advertising tax may be reflected in the amounts billed to customers. Instead, the Attorney General argues that the prohibition on transmission is a “prohibition on the direct transmission, as opposed to the indirect transmission, of the tax cost”, which is intended to ensure that the taxpayer’s “gross annual income” subject to tax “Reflect the total amount of revenue received from customers, not less any tax costs that the taxpayer would otherwise prefer to pass directly to the customer.”
The parties are due to file additional briefs in the case on May 13, 2022. The case is civil number 21-cv-410 (D. Md., filed February 18, 2021). Sarah P. Hogarth, Paul W. Hughes, Michael B. Kimberly and Stephen P. Kranz, partners in McDermott’s Washington, DC office, represent the plaintiffs.