Page 151 - TaxAdviser_2022

STATE & LOCAL TAXES

data within the taxpayer’s possession
Litigation is pending in federal and state courts or control that most reliably identi-
fies a device’s location, including both
seeking to bar implementation of the Maryland technical information and nontechnical
digital advertising gross revenue tax. information included in the contract for
digital advertising services. This techni-
cal information includes internet proto-
requires applying a fraction to annual derived from digital advertising services col, geolocation data, device registration,
gross revenue from digital advertising in the state” and the denominator “is cookies, or “industry standard metrics.”
services, the numerator of which is the annual gross revenues of a person The regulations also reference the “to-
the annual gross revenue of a person derived from digital advertising services tality of the facts and circumstances” in
derived from digital advertising services in the United States.” determining device location.
in Maryland, and the denominator of However, the regulations do not use Observation: While information
which is the annual gross revenue of a a gross revenue apportionment fraction regarding device location may be avail-
person derived from digital advertising but instead provide: “An apportionment able, tax departments’ access to such
services in the United States. factor shall be developed as a fraction information and whether the informa-
In May 2021, Maryland enacted leg- where the numerator is the number of tion will be deemed sufficient by the
islation to delay the effective date of the devices that have accessed the digital Comptroller’s Office remain major areas
digital advertising tax.12 The first mea- advertising services from a location in of uncertainty.
surement period for the tax was moved the State, and the denominator is the
from 2021 to 2022, meaning that the number of devices that have accessed Throwout rule
tax first will be measured by gross rev- the digital advertising services from any The regulations also include a “throwout”
enue from digital advertising services location.” rule: “Devices whose location are inde-
recognized in the 2022 calendar year. Observation: This statement ap- terminate shall be excluded from both
Further, the first estimated payment will pears to conflict with the statute in that the numerator and denominator of the
be due April 15, 2022. the denominator could be worldwide, apportionment factor.”
The legislation also made two sub- as opposed to solely the United States. Observation: In addition to the
stantive changes to the digital advertis- However, the regulations also provide: possible distortive effect of this rule,
ing tax. First, it provides that the tax “Revenues from digital advertising there is no certainty that the Comptrol-
may not be directly passed to customers services are derived in the United States ler’s Office will agree that a device loca-
“by means of a separate fee, surcharge, when any portion of those services are tion could not be assigned.
or line-item.” Second, it provides that accessed by devices within the United Observation: The regulations do
digital advertising services do not in- States.” It is unclear why this would not provide a safe harbor, alternative
clude advertising “on digital interfaces need to be known unless it is for appor- methods, or means to ensure that the
owned or operated by or operated on tionment purposes. sole method provided (device location
behalf of a broadcast entity or news with a throwout rule) does not result in
media entity.” ‘Device’ and ‘location’ a distorted attribution of gross revenue
Under the regulations, a “device” is to Maryland. The regulations do not
Regulations highlight “any medium through which digital address fundamental issues with the
compliance issues advertising services may be accessed, statute’s vagueness, including what con-
On Dec. 8, 2021, the Comptroller’s including stationary or portable com- stitutes “digital advertising” services and
Office published final regulations on puting devices, tablets, phones, and who is subject to the tax.
apportioning the digital advertising smart devices.” “Location” is “the actual,
tax.13 A comparison with the Maryland physical location of a digital interface Where to next?
statute is interesting. when a digital advertising service is ac- Litigation is pending in federal and
The statute provides that the nu- cessed by a user.” state courts seeking to bar implementa-
merator of the apportionment fraction The location of a device is de- tion of the Maryland digital advertising
“is the annual gross revenues of a person termined by using the totality of the gross revenue tax, but a final decision

12. Maryland S.B. 787, enacted May 12, 2021. See PwC’s Insight, “Maryland (April 13, 2021), for details.
Legislature Approves Digital Ad Tax Delay, Digital Products Amendments” 13. 48-25 Maryland Register 1079 (Dec. 3, 2021).

42 March 2022 The Tax Adviser