Maryland Republicans launch effort to repeal tax on digital, streaming sales

Republicans in the Maryland Senate are hoping to rally public support to an effort to repeal a sales tax on digital download and streaming services in the coming legislative session.

The expected legislative push and a petition drive were announced by Senate Republicans on Thursday as the state’s tax filing deadline was drawing to a close.

“The sad part of this is that this really wasn’t necessary at this time,” said Sen. Bryan Simonaire, Republican of Anne Arundel County and the Senate minority leader. “People were struggling during a pandemic and one of the areas they were really coping with – isolation — was through these download services, and they (Democrats) decided to tax them.”

For years budget analysts had noted declining sales tax revenues as customer preferences shifted from brick-and-mortar retailers to online purchases and increased use of digital video and music streaming services.

The bill passed by the Maryland General Assembly in 2020 in the waning days of a pandemic-shortened session applied the state’s 6% sales tax to digital downloads of books, music, video games and other products. It also applied the sales tax to online streaming services including Netflix, Hulu, Disney Plus, Apple Music and Spotify.

“Around 30 other states have put in place this vital bipartisan modernization of our tax code that treats online retailers the same as Main Street retailers, and ensures we have adequate revenue to fund our schools, health care, public safety and other priorities,” said Del. Marc Korman, Democrat of Montgomery County and sponsor of the House bill.

Legislative analysts estimate the bill could bring in between $83 million and $119 million annually.

Ironically, the Senate version of the bill was co-sponsored by then-Sen. Andrew Serafini, Republican of Washington County, a fiscal conservative who defended the bill as bringing tax policy fairness to online retailers. Serafini was the only Republican in the General Assembly to vote for the bill.

Supporters in 2020 noted that, in many cases, it would essentially apply to products that if purchased in a traditional retail setting would be already subject to the state sales tax. Nearly three dozen states had already passed some form of tax on digital downloads and or streaming services, some as long ago as 2012. Most apply the respective state’s sales tax.

“Well, it’s unfortunate that Senate Republicans want to put Maryland small businesses at a disadvantage against huge, out of state, multinational companies that pay almost no taxes in our state,” said Del. Eric Luedtke, Democrat of Montgomery and House majority leader. “Maryland small businesses deserve a level playing field.”

The bill was vetoed by Republican Gov. Larry Hogan, who has made opposing new taxes a cornerstone of his two-term administration. The legislature overrode that veto earlier this year, leaving Republicans with only the option of mounting a public campaign to overturn it.

Senate Republicans now hope to force a repeal through an online petition campaign they say will be the start of building support for repeal legislation. That effort, if unsuccessful, would also lay the groundwork for a potential campaign issue entering the 2022 election year. Hogan rode an anti-tax sentiment driven by savvy messaging on the stormwater tax billed as a “rain tax” to the State House in 2014.

Sen. Mary Beth Carozza, Republican of the Eastern Shore, said Republicans are hoping to follow the path of other repeals of taxes including the 2007 computer sales tax and a tax on stormwater management.

That computer sales tax was repealed after the industry, caught unaware, regrouped and mounted a strong lobbying effort to pull them from a service tax imposed by the legislature.

The stormwater management fee was partially repealed when the General Assembly after Hogan’s election eliminated the mandate requiring some counties to charge the tax. Instead, those jurisdictions had the option to impose a tax to recover costs of implementing improvements to sediment and pollution control. A number of counties that imposed the tax repealed or reduced the fee, while others continue to charge residents.

“Now it’s our turn again for Republicans to stand up for the low-income and working families with a statewide effort to repeal this Netflix tax,” Carozza said.