Franchot says decision striking Md. digital ad tax shouldn’t be appealed

Maryland’s chief tax collector said a decision striking down the state’s digital ad tax should not be appealed.

Instead, Comptroller Peter Franchot, who is the named party in a lawsuit challenging the tax, on Friday called for lawmakers to revisit the policy.

“While the enactment of this law was well-intended, with revenue dedicated to funding the Blueprint for Maryland’s Future, its constitutionality — coupled with the tax’s residual impact on small businesses that utilize digital advertising services — continue to give me pause on the prudence of this law,” Franchot said in a statement.

Franchot and Senate President Bill Ferguson, the main sponsor of the law, have opposing views on an appeal that set up an unusual conflict between state entities both represented by the Office of the Attorney General. Despite Franchot’s opposition, an appeal seems likely.

RELATED: Judge strikes down Md.’s digital advertising tax as unconstitutional

Raquel Coombs, a spokesperson for the attorney general’s office, said no decision has been made.

“Our job is to defend the constitutionality of state laws,” Coombs said. “We will continue to do so. This is a good law.”

The law levied a tax on large companies such as Google, Facebook and others that run digital advertisements in Maryland.

Businesses with a gross annual revenue would be assessed 2.5%. That tax grows to 5% for companies with $1 billion in revenue, 7.5% for revenue exceeding $5 billion and 10% for companies reporting earnings of $15 billion or more. 

The bill, passed in 2020, is considered the first of its kind in the country.

Lawmakers hoped it would bring in as much as $250 million annually. The money would be earmarked for an expensive education reform package.

But those same lawmakers were warned by opponents that the law might be unconstitutional. Gov. Larry Hogan vetoed it, citing those concerns, but the House and Senate overrode him.

On Monday, Anne Arundel Circuit Court Judge Alison L. Asti, in a summary judgment, said the law violates the First Amendment because it is not viewpoint neutral and imposes state regulations on interstate commerce.

Comcast and Verizon challenged the law almost immediately after the legislature overrode Hogan’s veto.

A second lawsuit filed in federal court is pending.

“As was the case when this legislation was being deliberated in the General Assembly, I remain concerned about the constitutionality of this first-in-the-nation law to impose a tax on digital advertisement,” said Franchot, who is in his last three months in office. As comptroller and the state’s chief fiscal officer, I firmly believe that instead of continuing to expend the public resources to defend a law that was constitutionally questionable at the time of enactment, the incoming governor and incoming legislature should instead be given the opportunity to revisit this law.”

Franchot, however, is technically not the only client in the case — the General Assembly is as well.

The law has strong support in an overwhelmingly Democratic legislature. Ferguson, the Senate president, was a lead sponsor of the bill.

“We are confident that the attorney general will prevail in state courts on appeal,” Ferguson said in a statement earlier this week. “Maryland’s children deserve a world-class 21st century education system that works for them and that’s funded appropriately. That’s what this law is all about.”