Lobbies for tech sue to overturn Maryland digital tax

A group of tech industry trade associations sued the state of Maryland Thursday over its newly enacted tax on digital ads targeted at state residents.

Driving the news: Last week, the Maryland legislature voted to overturn Republican Gov. Larry Hogan's veto of the state's first-in-the-nation digital tax law, which aims to raise money for education initiatives in the state by taxing digital advertising from the biggest companies.

What's happening: The U.S. Chamber of Commerce, the Internet Association, NetChoice, the Computer & Communications Industry Association, and TechNet joined in the complaint, filed in the U.S. District Court for the Northern Division of Maryland.

• Their lawsuit asserts that Maryland's tax violates the federal Internet Tax Freedom Act and also the Constitution's due process clause “by burdening and penalizing purely out-of-state conduct."

Critics of Maryland's tax say it is unfair, discriminatory, hurts the economy during a pandemic, and is unconstitutional. Maryland has estimated the law would earn the state about $250 million annually.

• States have been forging ahead with their own tech policy laws as the federal government stalls, as Axios reported last week. The legislation resembles similar efforts to tax large American tech companies in Europe.

Between the lines: Most of the groups backing the suit get extensive tech industry funding and generally fight these battles on behalf of the greater industry. The groups also hope the lawsuit will discourage other states from considering similar measures.

What they're saying: "The premise of the law is deeply flawed. ... [T]he Act will raise costs for consumers and make it more difficult for businesses to connect with potential customers," the lawsuit reads.

• “While the legislation is designed to directly target certain large, mostly out-of-state companies, it will ultimately be bad for Maryland businesses of all sizes," said Linda Moore, president and CEO of TechNet. "Instead of spending scarce resources defending a discriminatory charge, the state should repeal the law and focus on policies that support the many businesses already suffering from the COVID-19 pandemic.”