Maryland Tax Court Strikes Down Digital Advertising Tax

The Maryland Tax Court struck down a 2021 law that imposed a first-of-its-kind tax on digital advertising sales, ruling that the statute violates the federal Internet Tax Freedom Act, the First Amendment, and the commerce and due process clauses of the U.S. Constitution. The court ordered the state to refund collected taxes plus interest to Apple, Google, and Peacock TV. The law targeted companies with global annual revenues exceeding $100 million, applying a levy between 2.5% and 10%.

In its ruling, the court found that the tax inappropriately relied on global revenue rather than in-state advertising revenue. It also determined that the law's exemptions for news and broadcast entities suppressed speech and that digital advertising is too similar to non-taxed print or billboard ads to justify the levy. The state had collected over $400 million as of October, funds which were earmarked for the Blueprint for Maryland’s Future K-12 education program.

Maryland Comptroller Brooke Lierman, Senate President Bill Ferguson, and House Speaker Joseline Peña-Melnyk expressed disagreement with the decision and indicated they intend to appeal. Conversely, Senate Minority Leader Steve Hershey stated the ruling confirmed long-standing Republican warnings. Industry groups, including the Association of National Advertisers and Americans for Digital Opportunity, hailed the decision as a validation that such taxes are illegal, suggesting the ruling may impact similar legislative efforts in other states, such as Washington.