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digital advertising gross revenue tax.10
Digital product sales tax imposition and However, the final budget sent to and
base expansion continues to be considered approved by Gov. Ned Lamont did not
include these provisions. Still, there
in multiple states. was favorable discussion of the policy
in committee hearings, and neighbor-
ing Massachusetts has multiple bills
Looking ahead on digital corporate income. Several adopting pending to impose similar provisions.
product sales and use taxes nations have since committed to repeal-
Digital product sales tax imposition ing their DSTs once “Pillar One” of Maryland enacts a
and base expansion continue to be con- the OECD/G20 Inclusive Framework first-in-the-nation DST
sidered in multiple states. For example, proposal is implemented.9 Under Maryland’s legislation, digital
legislation proposed in Georgia in the Observation: States approach cor- advertising services include advertis-
2021 regular session would expand porate income taxation from a different ing on a digital interface (any type of
the sales tax base broadly to “sales of perspective than most nations. States software, including a website, part of
digital goods or services” and include tax all the apportioned income of U.S. a website, or application that a user is
“prewritten computer software” within corporations (with some exceptions, able to access). Examples in the legisla-
the definition.7 Likewise, proposed e.g., 80/20 companies), increasingly by tion include banner advertising, search
Nevada legislation would impose a new using single sales factor apportionment engine advertising, interstitial advertis-
excise tax parallel to the sales and use tax and market-based sourcing. Interna- ing, and other comparable advertising
on digital products, defined to include tional corporate taxation generally is services. A person must have annual
prewritten computer software.8 Both premised on either a “territorial” basis gross revenue derived from digital
proposals, and others, are likely to be or a “worldwide” basis with foreign tax advertising services in Maryland of at
reintroduced in 2022. credits allowed. States, however, seem to least $1 million to be subject to the tax
be responding to an argument that the in any year.11
Taxing digital services at the digital economy has not been paying its The base rate of tax is 2.5% for a
US state level “fair share” of tax revenue. person with global annual gross rev-

Turning now to the subject of digital While Maryland was the first state to enue (from any source, not just digital
advertising, on the same day that it ap- adopt a digital advertising gross revenue advertising) of $100 million through
proved expansion of its existing sales and tax, it was not alone in considering the $1 billion. The rate rises to 5% for a
use tax to digital products, Maryland measures. Bills have been introduced in person with annual global gross revenue
also adopted a first-in-the-nation digital more than a dozen states in the past two up to $5 billion; 7.5% up to $15 billion;
services tax (DST) on digital advertis- years to impose a similar digital adver- and 10% over $15 billion. Annual gross
ing gross revenue. Unlike sales tax base tising gross revenue tax, a social media revenue “means income or revenue from
expansion to digital goods and services, advertising tax, a sales tax on digital all sources, before any expenses or taxes,
which has been a continuing area of advertising services, a “data tax,” or some computed according to generally ac-
consideration in states for many years, other DST variation. cepted accounting principles.”
the digital advertising tax may have been Apart from Maryland’s enactment, A person exceeding any of these
intended to follow recent actions by cer- Connecticut probably came clos- thresholds is subject to tax at the des-
tain foreign countries to adopt a DST. est to enacting a DST in 2021. The ignated rate for the entire taxable base
The foreign consideration of DSTs Joint Finance, Revenue and Bond- (digital advertising service annual gross
was a response to perceived shortcom- ing Committee approved a budget revenue apportioned to Maryland).
ings in the taxation of multinational implementation bill that included a Apportionment under the legislation

7. Georgia H.B. 594, introduced Feb. 24, 2021. key impetus of the OECD/G20 Inclusive Framework’s negotiations was to
8. Nevada S.B. 346, introduced March 24, 2021. The bill received a third read- stop the proliferation of ‘Digital Services Taxes and other relevant similar
ing in the Senate, but it was re-referred to committee due to its anticipated measures’ ... by replacing them with a consensus-based reallocation of
failure to reach the state’s supermajority vote requirement. taxing rights among Inclusive Framework (IF) members.”
9. See Joint Statement from the United States, Austria, France, Italy, Spain, 10. Connecticut H.B. 6443, reported out of Legislative Commissioners’ Office,
and the United Kingdom, Regarding a Compromise on a Transitional Ap- May 10, 2021.
proach to Existing Unilateral Measures During the Interim Period Before Pillar 11. Maryland H.B. 732, enacted Feb. 12, 2021. See PwC’s Insight, “Maryland
1 Is in Effect (Oct. 21, 2021). The statement explains, “From the outset, a Enacts First-in-the-Nation Digital Advertising Tax” (Feb. 16, 2021), for details.

www.thetaxadviser.com March 2022 41