A Maryland state tax court has struck down the state’s tax on digital advertising and ordered officials to refund money collected from major technology companies, including Apple, Google and Peacock TV.
In a ruling issued Friday, the Maryland Tax Court found that the tax violated the federal Internet Tax Freedom Act as well as constitutional protections involving free speech, interstate commerce and due process.
Maryland became the first US state to impose a tax specifically on digital advertising when lawmakers approved the measure in 2021. The state had estimated that the tax could generate around $250 million annually to help fund a major K-12 education initiative.
Under the law, companies with more than $100 million in annual global gross revenue were subject to a 2.5% tax on revenue generated from digital advertisements displayed in Maryland. The rate increased for companies with higher global revenues, reaching 10% for companies earning at least $15 billion annually.
Supporters argued that the tax system needed to be updated to reflect major changes in the way businesses advertise and generate revenue.
However, major technology companies, including Meta and Amazon, challenged the law in several courts, arguing that it unfairly targeted them.
In its latest ruling, the Maryland Tax Court said Congress, rather than individual states, has authority to regulate interstate commerce. It also questioned the law’s use of companies’ global revenue to determine the tax, rather than revenue specifically generated from advertising in Maryland.
The court also cited the federal Internet Tax Freedom Act, which restricts states from imposing taxes on electronic commerce when comparable services are not subject to similar taxes.
The court found that, at least under the current circumstances, there was no significant distinction between digital advertising and traditional advertising such as print and billboard ads, meaning the federal restriction applied.
The ruling follows a decision last year by the 4th U.S. Circuit Court of Appeals, which found that part of Maryland’s digital advertising law was unconstitutional because it prevented companies from informing customers that they were passing the tax costs on to them.
Judge Julius Richardson said that provision violated the companies’ First Amendment right to free speech.
Maryland Senate President Bill Ferguson and House Speaker Joseline Pena-Melnyk, both Democrats, said they respectfully disagreed with the tax court’s decision and expected the legal battle to continue.
They said the law was intended to modernize Maryland’s tax system in response to changes in the economy.
“We remain committed to ensuring that Maryland’s tax system is fair, sustainable, and reflects today’s economy,” they said in a statement, adding that they would continue working with the state attorney general and comptroller as the case moves through the courts.
The ruling is being closely watched by other US states considering similar taxes on digital advertising.