The Big Story: Judge strikes down Maryland tax on digital advertising
A Maryland judge struck down the U.S.’ first tax on digital advertising, which faced vocal challenges including from technology companies and would have resulted in taxed companies passing down its cost to customers, including startups. In a ruling on Monday, the court found the tax, implemented by Maryland lawmakers to raise revenue, unconstitutional and a violation of the Internet Tax Freedom Act.
Maryland’s tax on gross revenues from digital advertising services—which was first adopted in 2020 over the governor’s veto—went into effect in January. The law would apply an excise tax to gross revenue resulting from digital advertising, targeting large tech companies that often provide low-cost advertising and other services to consumers, like startups. Though smaller technology companies, like many startups, would have been spared the direct burden of the tax, the cost was expected to be passed onto customers in the form of price increases—which startups with lean budgets could struggle to manage. And startups often rely on digital advertising to effectively reach consumers, making the associated cost increases particularly painful.
Startups are watching as the legal battle unfolds to see Maryland’s Comptroller General's next steps, and because other states, like New Mexico and Massachusetts, have introduced efforts on digital ad taxation. Still, more states are mulling efforts to tax tech companies, including taxes on income from things like social media advertising. Policymakers must be mindful of startups and small companies who rely upon low-cost services of platforms and marketplaces, and whose businesses depend on affordable services when considering implementing these measures.
Policy Roundup:
Supreme Court denies request to block Biden student loan relief plan. Supreme Court Justice Amy Coney Barrett on Thursday refused a request by an association of Wisconsin taxpayers who called for an emergency block to the Biden administration’s student loan relief plan, claiming the plan illegally encroaches on Congress’ spending powers. Although Barrett dismissed the case for lack of standing, this is only one of the latest in a string of legal challenges to the administration’s plan to forgive up to $20,000 in student loan debt for thousands of qualifying borrowers. As Engine has stated in the past, the student debt crisis in the U.S. serves as a roadblock to innovation for millions of Americans, hindering many, especially people of color, from founding and working for startups, and policymakers should continue to consider efforts to ease the student debt burden so that U.S. innovation can thrive.
Remote work may have tax implications for startups, employees. In a new blog post, we explore the implications that remote work could bring employers—in particular, startups—as the U.S. recovers from the initial waves of the pandemic that shifted working patterns for companies of all sizes. Employers with a remote workforce navigate income and payroll withholding tax complexities, among other issues, and state and local labor laws could similarly impact startup employers. The rules can vary widely state to state, and lead startups to spend more of their limited resources on administrative costs—something Congress could step in to help alleviate.
California privacy agency releases updated draft regulations. On Monday, the California Privacy Protection Agency (CPPA) published updated draft rules of proposed regulations designed to implement and interpret the California Consumer Privacy Act as amended by the California Privacy Rights Act (CPRA). The proposed provisions will impact companies with nexus to California, including startups, and come as the CPRA—which amended the first sweeping privacy law California created in 2018—and four other state privacy laws enter force at the beginning of next year. That emerging patchwork of state privacy laws will be difficult for startups to navigate and could be solved by a federal privacy framework.
Engine calls on patent office to correct guidance. This week, Engine submitted comments to the U.S. Patent and Trademark Office (PTO) outlining measures the agency should take to improve the accuracy and accessibility of its current patent eligibility guidance. Right now that guidance is out of step with the governing law, and it puts the PTO in a position of granting ineligible claims—for example, patents that claim mere abstract ideas. And while the agency provides educational summaries about certain parts of patent law to help startups and small businesses that are newer to the patent system, those materials do not address eligibility—so startups are instead directed to lengthy and dense materials written for lawyers and patent examiners. In our comments, prepared in collaboration with students at Harvard’s Cyberlaw Clinic, Engine reiterates how startups depend on the PTO to make accurate assessments and that any updates to guidance and related materials should be done with startups in mind.
Join us for a discussion on the role of acquisitions in the startup ecosystem. On Monday, October 24th at 12:15 p.m. ET, we’re holding a virtual event to unveil our report with Startup Genome on “Exits, Investment, and the Startup Experience.” The report examines the role of exits in the startup ecosystem, highlights the importance of exits via acquisition, and emphasizes the experience of founders that have had their companies acquired. We’ll be joined by a panel of founders who have had their companies acquired to discuss their experiences, the report, and what policymakers can do to support startups. Register today.
Startup Roundup:
Take our Innovation for All survey. Take our survey and help us advance “Innovation for All” with our new initiative pursuing policy proposals to make the startup ecosystem more equitable, inclusive, and accessible for underrepresented founders. With the support of the Ewing Marion Kauffman Foundation, we are gathering feedback from underrepresented founders—including Black, Latinx, women, Indigenous, LGBTQ+, and rural founders—to learn more about the roadblocks they’ve faced, amplify these stories, and work together to educate policymakers on ways they can support an inclusive innovation ecosystem. Take our survey—or share it with relevant founders—today.
#StartupsEverywhere: Brooklyn, New York. Carefully is a platform enabling parents to collectively share the responsibilities of childcare. We spoke to the Founder & CEO Leslie Borrell about how working as a single mom inspired the creation of Carefully, why policymakers should prioritize solving the childcare crisis, and how founder support programs were critical to helping her build a startup.
