Tuesday, June 1, 2021
Darien Shanske (UC-Davis), Chris Moran (Venable, Baltimore) & David Gamage (Indiana; Google Scholar), Maryland's Digital Tax and the ITFA's Catch-22, 100 Tax Notes State 141 (Apr. 12, 2021):
This essay analyzes whether U.S. state-level taxes on digital advertising — like Maryland’s new tax — are barred by the Internet Tax Freedom Act and argues that the Act’s prohibition against “discriminatory” taxes on electronic commerce should be construed narrowly.
The large and growing digital economy does not function the same as the non-digital economy. The Constitution should not prevent states from imposing reasonable taxes on the digital economy. The ITFA not only preempts taxes on internet access, but also preempts states if they tax similar transactions more heavily if they are conducted over the internet. The classic example would be taxing a purchase of shoes more heavily over the internet than in a brickand-mortar store. We think it is quite reasonable for the ITFA to do these two substantial things and not much more. If the ITFA instead reaches as far as the plaintiffs claim in the Maryland case, then it represents a dramatic and uncertain contraction of state taxing authority. There is substantial doubt whether Congress could achieve this result even if it clearly expressed its intent to, but we don’t think Congress did so and, thus, we think it did not.