Maryland’s first-in-the-nation tax on digital advertising has been struck down by the Maryland Tax Court, creating uncertainty over hundreds of millions of dollars collected by the state and revenue intended for public education.
The court ruled on August 14th that the Digital Advertising Gross Revenues Tax violates the federal Internet Tax Freedom Act, which limits discriminatory taxation of internet commerce. The court found Maryland was improperly treating digital advertising differently from similar forms of offline advertising.
The court also found constitutional problems involving the Commerce Clause and due process.
The tax applies to the largest companies, generally those with at least 100 million dollars in global annual revenue that generate at least one million dollars from digital advertising in Maryland. Depending on a company’s global revenue, tax rates range from 2.5% to 10%.
Maryland has collected about 535 million dollars from the tax since it took effect in January 2022. The money was designated for the Blueprint for Maryland’s Future, the state’s public education program.
Senate Minority Leader Steve Hershey and Senate Minority Whip Justin Ready say the ruling confirms Republican warnings that the tax was unconstitutional and argue that businesses and consumers ultimately bore some of its costs.
Comptroller Brooke Lierman, a Democrat who voted for the tax while serving in the House of Delegates, says the state will work with the attorney general to defend the law.
The Tax Court ordered refunds to companies that paid the tax. However, the state is expected to seek judicial review, and the refund process could be delayed while the case moves through the appeals process.
The ruling adds another fiscal challenge for Maryland. Current official projections show a structural budget shortfall of about 598 million dollars in fiscal 2027, growing to roughly 2.6 billion dollars in fiscal 2028.
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