Possible Conn. Digital Ad Tax Concerns Ad, Tech Groups

Among sweeping state tax changes in the Connecticut bill is a proposed 10% tax on businesses that get more than $10 billion in annual gross revenue from digital advertising services. Businesses, telecom companies and internet industry groups sued Maryland for enacting a similar policy (see 2302240047 and 2301250026).

Connecticut shouldn’t follow Maryland in imposing “a targeted, punitive tax on the gross revenue derived from digital advertising services,” said the coalition. By assessing digital but not nondigital ads, the proposed state tax would be discriminatory and prohibited by the Permanent Internet Tax Freedom Act, they said. Adopting “an arbitrary threshold of annual gross revenues would tend to tax larger, out-of-state advertising service providers at a higher tax rate than their Connecticut counterparts,” possibly violating the Constitution’s Commerce Clause, said the group: And it may violate the First Amendment by singling out digital commercial speech.

“CCIA cautions against singling out businesses offering digital advertising services, and policymakers should provide a rationale if print or broadcast services employing a similar business model would not also be captured in the proposed tax,” the internet group said in separate comments. HB-5673 fails to define “digital advertising services” or geographically limit the bill to companies in Connecticut or even the U.S., and it would tax all digital ad revenue even if it came from outside the state, CCIA said. The bill claims to target large companies, but costs would be passed on to small businesses that buy ads, it said.

The Connecticut Retail Network agreed. “What might be aimed at the industry giants will find its way onto invoices in the accounts payable departments of Connecticut’s retail businesses,” it said. The new tax would be especially bad timing after the COVID-19 pandemic, the network said. “Customer behavior changed overnight, and that meant retailers large and small had to invest in systems and platforms they had not budgeted for,” including digital ads “that they knew would be their best -- or even their only -- effective way to reach their customers.” Consumer behavior hasn’t gone back to how it was pre-pandemic, it said. “People who became accustomed to doing more online still are.”

Connecticut Voices for Children mostly backed HB-5673 but conditioned their support for the digital ad tax: “Establishing a tax on the gross revenue of large businesses would only make CT’s tax system fairer if the new tax was also coupled with a targeted tax credit that fully (or more than fully) offsets the increase in the tax burden that the impacted businesses shift to low- and middle-income families.”

The overall bill would “bring equity” to Connecticut taxpayers by adjusting increased tax rates for the wealthiest, the American Federation of State, County and Municipal Employees Council 4 testified. The New Britain Racial Justice Coalition supports HB-5673 because Connecticut is a place “where hundreds of thousands of working people are struggling to raise families, even while a handful of wealthy corporations and wealthy residents are getting even wealthier,” the group said. “The scale of this crisis demands a bold response.”