Maryland Tax Court Overturns State’s Digital Advertising Tax
A significant legal development in Maryland has led to the annulment of the state’s pioneering digital advertising tax. The Maryland Tax Court has declared the tax unconstitutional, citing violations of the federal Internet Tax Freedom Act and several constitutional amendments, including the First Amendment, as well as commerce and due process clauses.
This court ruling mandates the state to return the taxes collected from major tech companies such as Apple, Google, and Peacock TV. The tax, which was enacted in 2021, targeted revenue from digital advertisements shown within the state. Companies with annual global revenues exceeding $100 million faced a tax rate starting at 2.5%, escalating to 10% for those with $15 billion or more.
The tax was initially projected to generate approximately $250 million annually, funds intended to support extensive K-12 education reforms. However, the legislation faced significant opposition from tech giants like Meta and Amazon, who argued they were being unfairly singled out. Legal representatives for these companies contested the law’s validity on several fronts, ultimately leading to its judicial review.
In a prior ruling, the 4th U.S. Circuit Court of Appeals found that the legislation contravened constitutional rights by preventing Big Tech firms from informing customers about the tax. Judge Julius Richardson noted this restriction breached free speech rights.
Despite the court’s decision, Maryland Senate President Bill Ferguson and House Speaker Joseline Pena-Melnyk, both Democrats, expressed their disagreement. They said, “We remain committed to ensuring that Maryland’s tax system is fair, sustainable, and reflects today’s economy,” indicating their intent to continue legal proceedings with the assistance of the Attorney General and Comptroller.
The court emphasized that the authority to regulate interstate commerce lies with Congress, not state legislatures. Furthermore, it highlighted the inappropriateness of basing the tax on global revenue rather than revenue from in-state advertising.
According to the federal Internet Tax Freedom Act, e-commerce cannot be taxed if equivalent services remain untaxed. Currently, digital advertising does not differ significantly from traditional advertising mediums like print or billboards, thus falling under the same protection from taxation.
For more information on this topic, you can read the full ruling here.
