The Maryland Legislature overrode a Governor’s veto last month of House Bill 732. The override of this bill will allow for a new tax to be imposed on digital advertising, effective for tax year 2021. This is a tax on gross receipts derived from digital advertising. The tax could apply to taxpayers with as little as $1 million in sales derived from Maryland customers.
The tax applies a graduated rate that increases in increments based on the taxpayer’s global annual revenues, which are defined as income or revenue from all sources, before any expenses or taxes, computed according to generally accepted accounting principles.
- 2.5% of the assessable base for persons with global annual gross revenues of US$100 million through $1 billion
- 5% of the assessable base for persons with global annual gross revenues of more than $1 billion through $5 billion
- 7.5% of the assessable base for persons with global annual gross revenues of more than $5 billion through $15 billion
- 10% of the assessable base for persons with global annual gross revenues exceeding $15 billion
Taxpayers with annual gross revenues derived from digital advertising services within Maryland of at least $1 million must file a return with the Office of the Maryland Comptroller of Treasury on or before 15 April of the following year. Taxpayers that reasonably expect their annual gross revenues from digital advertising services in the state to exceed that amount must file a declaration of estimated tax on or before 15 April of that year and pay quarterly estimated taxes. Taxpayers subject to the tax must maintain records of the digital advertising services they provide in the state to substantiate the basis for their apportionment and calculation of the taxes owed on digital advertising gross revenues.
Failure to comply with provisions of this new tax could result in criminal penalties, including fines and imprisonment.
There are many questions with regard to the legislation as passed; we are awaiting further guidance from the Maryland Comptroller. To add to the uncertainty, there have been legal challenges filed against this tax. Although there are many unanswered questions and legal challenges, taxpayers should be aware that they could have an estimated tax filing requirement beginning on April 15, 2021.