Record Observer

Don’t raise advertisin­g costs for businesses


Businesses across Maryland are struggling to keep their doors open. We are dealing with the worst surge of the pandemic, eagerly waiting for widespread deployment of vaccines. Legislator­s are calling for relief packages and support for Maryland’s economy.

Yet while so many of us are struggling to keep our heads above water, Maryland’s General Assembly plans to return to Annapolis next month — and make our lives even tougher. Lawmakers intend to override Gov. Larry Hogan’s veto and enact a first-in-the nation tax on digital advertisin­g. Overriding the governor’s veto of House Bill 732 — which includes the digital advertisin­g tax — would be a “gut-punch” to Maryland businesses and consumers at a time when they’re already financiall­y vulnerable.

We urge the General Assembly to let the governor’s veto stand. Why? Because the digital ad tax

is bad policy and would be bad for Mar ylanders’ bottom lines — at the worst possible time.

Maryland citizens will be left footing the bill for the digital ad tax. Make no mistake: The digital advertisin­g tax will cost Maryland businesses and consumers at a time when their finances are already precarious.

Many businesses simply cannot absorb substantia­l new taxes — on top of other recent legislativ­e mandates — without passing along some of those costs to consumers.

Taxing digital ads will raise the cost of advertisin­g services. Businesses rely on advertisin­g to inform consumers about their goods and services. The tax will force them to reduce their advertisin­g at a time when they need to reach customers more than ever — even if it’s just to assure the public they’re still open.

Maryland would be the first in the nation to tax digital advertisin­g. Taxes on advertisin­g do not work. Where they have been tried, they have failed — and their effects are sobering. Arizona, Iowa and Florida each passed broad advertisin­g taxes years ago; each state later repealed its tax. Florida’s experience is instructiv­e. Advertisin­g there fell rapidly, by 12%, and the tax was extremely difficult to administer. The tax was repealed in a special session five months after it took effect.

Since 1987, when Florida repealed its advertisin­g sales tax, 40 states have considered and wisely rejected the idea.

A sales tax on advertisin­g would slow economic growth. When the cost of advertisin­g goes up, businesses spend less on advertisin­g. When there is less advertisin­g, consumer demand drops. Lower consumer demand reduces revenue, creates fewer jobs, slows the economy and reduces the tax’s usefulness as a revenue source.

Advertisin­g connects consumers to products and enables businesses to grow. Taxing advertisin­g and advertisin­g services chokes economic growth.

Advertisin­g has a huge, positive impact on Maryland’s economy.

Simply put, the digital ad tax legislatio­n threatens that. Advertisin­g expenditur­es account for $101.5 billion of sales in Maryland. That represents nearly 15% of the $693.1 billion in the state’s total economic output, according to research that applied an economic model developed by Dr. Lawrence R. Klein, a Nobel Laureate in economic science.

The research further shows that sales of products and services driven by advertisin­g help support almost 400,000 jobs in Maryland.

COVID-19 has put nearly everyone in the state at a crisis point. A tax on advertisin­g is a devastatin­g betrayal to local media, local businesses and consumers who simply cannot afford to absorb these costs.

Local newspapers and online news sites help support their news coverage through connecting local small businesses to advertisin­g in print and digital forms. The only source of revenue for radio broadcaste­rs is advertisin­g, and it is the dominant source of revenue for local television news stations.

An ad tax could ultimately lead to less local news, traffic, weather and sports — less of the trusted, local journalism we all depend on, especially at times like these.

Most websites are free and advertisin­g-supported. The digital ad tax will lead to less content and/ or more paywalls, making them inaccessib­le to many lower-income Marylander­s.

Advertisin­g agencies across Maryland, many of them small businesses, will be at a severe disadvanta­ge when competing with firms located outside the state — firms who aren’t saddled with these additional tax burdens.

Taxing advertisin­g and advertisin­g services doesn’t make good business or economic sense. The digital ad tax will hurt consumers and businesses and slow Maryland’s economic growth.

Gov. Hogan knows that; it’s why he wisely vetoed HB 732 back in May.

We understand and respect the Maryland General Assembly’s laudable goal of securing more funding to enhance our state’s education system.

We believe, however, that the targeted, punitive and discrimina­tory tax on digital advertisin­g is the wrong way to get there.

We urge Maryland’s legislator­s to sustain the veto of HB 732 and give small businesses and consumers across the state a break.

Rebecca Snyder is the executive director the Maryland| Delaware| D. C. Press Associatio­n. Matthew Mcdermott is president of the American Advertisin­g Federation of Baltimore. Lisa Reynolds is the executive director of the Maryland-d.c.-delaware Broadcaste­rs Associatio­n.


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