Connecticut legislative leaders recently announced support for a digital advertising tax (“Connecticut Digital Advertising Tax”) proposed by the Connecticut Joint Committee on Finance, Revenue and Bonding (the “Finance Committee”).  Connecticut joins Maryland, Massachusetts, New York, and Texas, among others, as states with concrete digital advertising tax proposals on the table (and in Maryland’s case, an enacted law).

The idea of the Connecticut Digital Advertising Tax was first proposed this legislative season by proposed bills H.B. 6187 and S.B. 821.  Connecticut “proposed bills” are short statements in non-statutory language for the relevant legislative committee to consider.  H.B. 6187 and S.B. 821 were referred to the Finance Committee on January 29, 2021 and February 3, 2021, respectively, and the Committee held a public hearing on both proposed bills on March 15, 2021.   Following that hearing, the Finance Committee introduced S.B. 1106, which included a fully-drafted Connecticut Digital Advertising Tax proposal and which was the subject of a hearing on April 20.  The Finance Committee also amended the budget implementer bill (H.B. 6443) on April 22 to incorporate an identical version of the Connecticut Digital Advertising Tax proposal.  The implementer bill is currently pending before the House. 

The Connecticut Digital Advertising Tax proposals are similar to Maryland’s enacted digital ad tax.  Namely, “digital advertising services” is defined as “advertisement services on a digital interface, including banner advertising, search engine advertising, interstitial advertising and other comparable advertising services.” This definition is nearly identical to Maryland’s definition.[1]  The “assessable base” is defined as “annual gross revenues derived from digital advertising services in the state.”  The tax rate schedules are also identical to those in Maryland:  the tax rates range from 2.5% to 10% of the assessable base and the rate increases according to global annual gross revenues.[2]  Under both proposals, the Connecticut Digital Advertising Tax would become effective January 1, 2022.

As such, the Connecticut Digital Advertising Tax has some of the same constitutional problems that we previously discussed with regard to Maryland’s digital ad tax in that the tax base is determined related to activity in the state but the rate is determined based on global annual revenue.  It also only applies to digital advertising, raising Internet Tax Freedom Act issues. 

Also notably absent from the Connecticut proposals is any guidance on sourcing.  Instead, the Connecticut Digital Advertising Tax proposals would authorize the Commissioner of Revenue Services to adopt regulations pertaining to allocation and apportionment for purposes of computing the assessable base, raising concerns about unconstitutional delegation of legislative powers. 

Notably, the Connecticut Digital Advertising Tax does not have any of the provisions recently enacted by Maryland S.B. 787 to amend Maryland’s digital ad tax to exempt news media and broadcast organizations and to prohibit taxpayers from directly passing the tax through to customers as a separate fee, surcharge, or line item. 

Ultimately, because the Connecticut Digital Advertising Tax proposals are so similar to the Maryland digital ad tax, it would face many of the same legal challenges, including constitutional and Internet Tax Freedom Act challenges, if passed.  We will continue to keep you updated on SALT Savvy on the wave of digital advertising taxes sweeping the nation.

[1] See Md. Code Ann. Tax-Gen. § 7.5-101(d).

[2] See also Md. Code Ann. Tax-Gen. § 7.5-103.


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