The Maryland Digital Advertising Tax
MD: The Maryland Digital Advertising Tax, set to be imposed on companies earning more than $100 million from digital advertising services in Maryland, has been invalidated by an Anne Arundel County Circuit Court judge. The judge ruled that the tax violated the Internet Tax Freedom Act and the due process clause, Commerce Clause, and First Amendment of the U.S. Constitution proponents of the tax plan to appeal the decision.
Opponents consider the ruling a victory for small businesses and have vowed to continue their legal challenges against the tax. Another hearing in the case is scheduled for early in the year, and oral arguments are set for a separate federal case related to the law on November 29.
The tax, ranging from 2.5% to 10% depending on annual gross revenues, is applied to digital advertising services on digital interfaces such as websites and applications. Maryland did not tax non-digital advertising. The revenue generated from the tax was intended to fund education in the state.
The Maryland law faced criticism for its vague definitions, which created uncertainty about revenue sourcing and tax applicability. The Tax Foundation highlighted the complexity of digital advertising and the failure of lawmakers to consider it adequately when structuring the proposed tax.
Although several states, including Montana, West Virginia, Nebraska, New York, South Dakota, and the District of Columbia, have considered similar digital advertising taxes, Maryland’s law was the first of its kind in the United States.
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