Nebraska lawmakers are considering two bills that would impose a 7.5% tax on advertising services, including digital advertising, for companies that have more than $1 billion in global gross advertising revenue. The bills, LB 1310 and LB 1354, are part of Governor Jim Pillen’s plan to reduce property taxes by shifting the burden to other sources of revenue. However, many Nebraska businesses and industry groups are opposed to the bills, arguing that they would hurt the local economy and violate the U.S. Constitution.
Advertising tax would affect small businesses and consumers
One of the main criticisms of the proposed advertising tax is that it would not only affect large tech companies like Google and Facebook, but also small and medium-sized businesses that rely on advertising to reach their customers. According to the Nebraska Chamber of Commerce and Industry, more than 80% of Nebraska businesses use digital advertising to promote their products and services, and many of them would face higher costs and lower returns if the tax is enacted.
The tax would also have a negative impact on consumers, who would see higher prices and fewer choices as a result of the tax. According to a study by the Phoenix Center, a 7.5% tax on digital advertising would reduce consumer welfare by $1.4 billion in Nebraska over the next decade. The study also found that the tax would reduce Nebraska’s gross state product by $2.1 billion and employment by 3,800 jobs over the same period.
Advertising tax would face legal challenges
Another major concern with the proposed advertising tax is that it would likely face legal challenges on several grounds. First, the tax would violate the Internet Tax Freedom Act, a federal law that prohibits states from imposing discriminatory taxes on electronic commerce. The tax would also violate the Commerce Clause of the U.S. Constitution, which limits the states’ power to regulate interstate commerce. The tax would discriminate against out-of-state businesses that provide advertising services to Nebraska customers, and would also create an undue burden on interstate commerce by requiring businesses to track and report their advertising sales based on the location of the users.
Furthermore, the tax would violate the First Amendment of the U.S. Constitution, which protects the freedom of speech and the press. The tax would discriminate against certain types of speech based on the content and the medium of the message, and would also have a chilling effect on the expression of ideas and opinions. The tax would also violate the Equal Protection Clause of the U.S. Constitution, which requires the states to treat similarly situated individuals and businesses equally. The tax would arbitrarily single out advertising services for taxation, while exempting other types of services that are similar in nature and effect.
Advertising tax would harm Nebraska’s competitiveness
Finally, the proposed advertising tax would harm Nebraska’s competitiveness and reputation as a business-friendly state. Nebraska would be the second state in the nation, after Maryland, to adopt a tax on advertising services, and would have the highest tax rate on such services in the world. The tax would discourage businesses from investing and expanding in Nebraska, and would also create a competitive disadvantage for Nebraska businesses that compete with businesses in other states that do not have such a tax. The tax would also send a negative message to the rest of the country and the world that Nebraska is not open for business and innovation.
The Nebraska Legislature’s Revenue Committee is expected to vote on the bills soon. If the bills are advanced, they would face further debate and amendments in the full Legislature. However, many Nebraska businesses and industry groups are urging the lawmakers to reject the bills and find alternative ways to fund property tax relief without harming the state’s economy and violating the Constitution.
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