The economy is in COVID-19 turmoil. Business closures, event cancellations and quarantines are crushing small businesses nationwide. With Gov. Hogan ordering nonessential businesses to close and employees to work from home, Maryland small businesses are furiously working with digital business tools and e-commerce to have some hope of keeping their business alive through this crisis. Amidst this intense struggle, it is baffling that Maryland legislators would enact a digital advertising tax that will hurt small businesses right when they need affordable marketing solutions the most.
Our organization represents thousands of digitally empowered small businesses. Many are Main Street businesses like restaurants and retailers, as well as small manufacturers, event planners and plumbers. Our members generally rely on affordable, efficient and data-driven online advertising, which they compare favorably to Yellow Pages, billboards and coupon mailers. Compared to all other forms of advertising, digital ads allow businesses to precisely select audiences by location, interests and other factors that ensure return on investment.
Digital advertising operates as a constant auction, ensuring price transparency and efficiency for all advertisers. Advertising platforms, like Google, Facebook and others, provide easy-to-use analytics tools that help small businesses know which audiences are likely to include that business’s best prospective customers. Small business advertisers then bid on keywords or demographics (e.g., location), and the platform awards winners with advertising space on websites or search results where the business’s desired audiences populate.
For both businesses and their ad partners, this is an incredibly complex process that occurs in milliseconds. Auctions are continually running in the background and winning bidders’ advertisements are delivered after a web page or search is requested, and the website page displays on your computer or phone. This guarantees that a small business advertisement goes only to relevant consumers at the very moment they have expressed a specific interest. Remarkably, amidst the coronavirus economic meltdown, when millions are staying home, digital advertising is both the best way to reach prospective customers and remains affordable for the smallest businesses.
Maryland legislators clearly intend to impose the tax only on the world’s largest companies, primarily out-of-state “Big Tech” firms that have very few employees in Maryland. But the tax, which ranges from 2.5% up to 10% of advertising revenue, will be paid by all advertisers. The smallest of Maryland small businesses advertise on the largest platforms — Google and Facebook — and should anticipate that one day soon, their invoices from those platforms include a new line labeled “10% Maryland Digital Advertising Tax.” Is this really what Marylanders need during the COVID-19 crisis, when small businesses, on average, have only have a few weeks of cash on hand?
If this bill becomes law, Maryland stands to be the only state in America that taxes digital advertising. Historically, states have eschewed taxing advertising in favor of taxing the commerce that advertising produces. Arizona, Iowa and Florida each passed broad advertising taxes several years ago and later repealed the taxes because they damaged their local economies and proved impossible to administer. Over the past 30 years, advertising taxes have been considered in more than 40 states and rejected in virtually every instance.
On behalf of our members and all Maryland small businesses, I urge Gov. Hogan to veto the digital advertising tax and urge legislators to let the veto stand. Maryland must “stay open” for small businesses and avoid pushing small businesses over the economic precipice. We are in unprecedented times, and this is not the time to raise taxes, particularly those that will be passed down to the same small businesses that are being crushed by the coronavirus crisis.
Jake Ward is President of the Connected Commerce Council (3C), a membership organization for digitally empowered small businesses.