On April 12, 2021, Chris Moran co-authored “Maryland’s Digital Tax and the ITFA’s Catch-22” in Tax Notes. The following is an excerpt:
The Internet Tax Freedom Act (ITFA), enacted as a temporary measure in 1998, then extended eight times as a temporary provision, and finally made permanent in 2016, prevents states and localities from taxing internet access or imposing “multiple or discriminatory” taxes on electronic commerce. The pandemic has accelerated the already rapid growth of the digital economy and digital advertising, and it stands to reason that state revenue systems should adapt to this shift.
One type of shift is to include digital goods and services within a state’s sales tax base, and another is to design new taxes that reflect the new economy. Maryland recently adopted both kinds of changes. The expansion of its sales tax to digital goods has been seen as good policy that raises no federal constitutional issues. By contrast, Maryland’s adoption of a new tax structure — a new tax on digital advertising — has attracted intense criticism and a lawsuit.