A Maryland state tax court has invalidated the state’s digital advertising tax, ruling that it violates the federal Internet Tax Freedom Act along with First Amendment protections and commerce and due process clauses of the U.S. Constitution. The court ordered state officials to repay taxes already collected from Apple, Google, and Peacock TV.
The tax, approved in 2021, was structured to charge companies with more than $100 million in global annual gross revenues at rates between 2.5% and 10% based on the size of their revenues. Maryland estimated the tax could generate approximately $250 million annually to support a comprehensive K-12 education initiative. The measure represented an effort by state lawmakers to modernize the tax system in response to evolving business practices and advertising strategies.
Legal challenges from major technology companies including Meta and Amazon disputed the tax on multiple grounds, contending that they were unfairly singled out. Earlier, a federal appeals court had already ruled that portions of the law violated constitutional free speech protections by preventing companies from informing customers about the tax.
The tax court determined that the federal government, rather than individual states, holds authority over interstate commerce regulation. The court also found that basing taxation on global revenue rather than in-state advertising revenue was improper. Additionally, the court reasoned that under the federal Internet Tax Freedom Act, digital advertising taxation is not permissible because similar services in other mediums, such as print and billboard advertisements, remain untaxed.
Maryland’s legislative leaders, including Senate President Bill Ferguson and House Speaker Joseline Pena-Melnyk, stated they disagree with the ruling and indicated the legal process would continue through the courts. The case has drawn attention from other states considering comparable digital advertising taxes.
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