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Don't dive in yet on digital advertising tax

Give state Rep. Holly Cheeseman, R-East Lyme, credit for being willing to break the mold and push for a tax increase, in this case a 10% digital state advertising tax on such behemoths as Facebook, Google and Amazon.

It is aggravating that these incredibly powerful, monopolistic companies face few taxes even as they are so dependent on public services and infrastructure to get their products to market, in the case of Amazon, or to rake in billions of advertising dollars, like Facebook and Google.

Cheeseman wants these companies to pay their fair share, with some of that new tax revenue earmarked for programs to prevent suicide, which has been linked to online bullying.

The bill has moved forward in the budgetary process. It is modeled after the first such digital advertising tax law, approved recently in Maryland by the Democratic legislature over the veto of Republican Gov. Larry Hogan, where it is expected to pull in $250 million in revenue in its first year.

But it is the newness of the concept and the unpredictability about who will really pay that has us nervous.

Cheeseman and other backers of the concept say it is designed to only target digital companies with massive global revenues, exceeding $10 billion annually. In a letter to Gov. Ned Lamont, the Connecticut Retail Merchants Association voiced its opposition, convinced that no matter how the final legislation is crafted the taxes will indirectly fall on small- and medium-sized retail businesses.

“While in concept this approach may seem to be a potentially lucrative source of revenue for the state that would not inflict any harm here, the reality will be far different,” wrote Tim Phelan, president of the group. “No matter how the bill is drafted…the targeted global companies will not simply absorb those increased costs – they will instead pass them down directly to digital advertisers from the state of origin.”

We don’t know who is right — backers who say small businesses can be insulated from the tax or the retailers convinced the tax arrow will pass through its bullseye and strike them. The Maryland tax also faces constitutional challenges, as would a Connecticut tax.

Retailers, reeling from the economic impact of the pandemic, can’t afford for lawmakers to impose the tax and then be wrong about who will ultimately pay. Better to let the experiment proceed in Maryland and, perhaps, other states, then revisit it when lawmakers can act with more certainty.

 

The Day editorial board meets regularly with political, business and community leaders and convenes weekly to formulate editorial viewpoints. It is composed of President and Publisher Tim Dwyer, Editorial Page Editor Paul Choiniere, Managing Editor Izaskun E. Larrañeta, staff writer Erica Moser and retired deputy managing editor Lisa McGinley. However, only the publisher and editorial page editor are responsible for developing the editorial opinions. The board operates independently from the Day newsroom.

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