On June 18, 2021, Chris Moran was quoted in Tax Notes on the Maryland comptroller’s motion to dismiss a federal lawsuit over the state’s new digital advertising gross revenues tax, arguing that the plaintiffs’ claims are not yet ripe and that the federal Tax Injunction Act (TIA) precludes the suit.
According to the article, a group of trade associations filed an amended complaint on April 30, 2021, seeking a declaration and injunction against enforcement of H.B. 732, as amended by S.B. 787. They argue that the law is preempted by the Internet Tax Freedom Act (ITFA) and violates the due process and commerce clauses of the U.S. Constitution, and that the pass-through prohibition violates both the dormant commerce clause and the First Amendment.
S.B. 787 includes a provision that prevents companies from directly passing on the cost of the digital ad tax to customers through separate fees, surcharges, or line items. The trade associations argue that this provision is “meant both to muzzle speech about the charge and to ensure that the targets of the charge, and they alone, bear its burden.”
Moran told Tax Notes he thinks the plaintiffs’ argument that “the exaction assessed by the Act is a punitive fee, penalty, or fine, and not a ‘tax’ within the meaning of the Tax Injunction Act” seems like a long shot.
Moran, who co-authored an article in Tax Notes State with professors Darien Shanske and David Gamage about ITFA and Maryland’s digital ad tax, said even if the tax potentially does have a punitive effect, he thinks it is still a tax. Otherwise, any sin tax, such as a tobacco tax, wouldn’t be barred by the TIA, he explained.