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Taxation with Representation

A view of the Maryland State House from College Avenue in Annapolis.
Enradius was recently charged with an additional Maryland tax for 6% on an invoice we received from a vendor. As a small business owner coming out of the insanity of 2020, I was infuriated. The Maryland Digital Advertising Tax was just voted into law and I knew that, as a small business, we would be hurt in the long run by this tax. Lawmakers don’t really understand our industry. Even though the intention is to target big businesses like Google and Facebook, the taxes will trickle down to small businesses like us.

During the 2021 Maryland General Assembly, I emailed State Senate President Ferguson, Tweeted, and called, but received no response. I am from Baltimore (born and lived all my life), I am a business owner, and I have paid and keep paying this state and city a lot of money over the years. Now with this extra 6% tax, Enradius must eat the cost or go back to our many clients and add the tax to their bill. We were even taxed on the out of state ads we ran. Many of these clients are nonprofits doing good for the state, and I hate putting an extra fee on a bill. I don’t want to jeopardize our business by adding fees on top of our agreed upon prices.   

I didn’t give up on contacting Senator Ferguson’s office. Eventually, his Special Assistant Ross Seidman did respond to me while the General Assembly was still in session, and I sent over my concern. Ross passed me over to Jay Maschas, the Assistant Director of Compliance, who noticed that the 6% tax on our invoice had nothing to do with the new digital ad tax, but was yet another tax resulting from House Bill 932, which places Maryland’s 6% sales tax on digital products.

Early in 2020, I noticed we were charged an extra fee from Zoom for being in Baltimore City. This drove me crazy and made me think that we were going to get taxed from every side of our day-to-day operations. The digital ads tax had not even been laid out yet and could still possibly hurt our business. 

Evidently, there was no one in the local advertising industry really up in arms about this additional tax. Either they were not aware of the new tax or invoices, some vendors hadn’t set the additional 6% in place, or the bills were just getting paid without understanding the extra 6% tax.

Jay allowed me to walk him through the process of how Enradius does business. I explained that we work with not only the Googles and Facebooks of the world, but also their 3rd party vendors. Ad agencies and broadcast media companies are actually our clients as well.    

It took several weeks of back and forth communication, but I am happy to say that the lawmakers went back in and amended this tax to exclude small businesses like ours through Senate Bill 0787. This legislation prohibits businesses subject to the digital advertising tax from passing along those costs to their customers through separate line items, and exempts many services that ad agencies provide from the digital products sales tax, such as ad placement and management. 

The exciting piece is that this is a big win for many Maryland ad agencies and web development firms. There could have been additional taxes on simple files that you download monthly from Dropbox, Fiverr, or Shopify, not just 3rd party ad networks. The Maryland sales tax now applies exclusively to digital products where the main deliverable is the downloaded file; for example, a set of campaign banners that a graphic designer was paid to produce, rather than a campaign report from an ad agency.

The revised tax tips can be found here – so if you are being taxed by a vendor for non-taxable services, reach out to them and get them reversed. We did, and it saved us thousands. 

I would have never thought that my voice would be heard, let alone that I could help revise a tax code or piece of legislation, but I did. I am especially grateful for Jay in taking the time to understand and learn what we do and put this into action. It gives me more confidence in the political system that we can work together and accomplish things for the good of our community and local business.

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