Maryland Court Invalidates Digital Ad Tax, Mandates Refunds to Tech Giants

Maryland’s tax court has invalidated the state’s groundbreaking digital advertising tax and required officials to return funds already collected from major technology companies. The ruling found the 2021 law violated the federal Internet Tax Freedom Act alongside constitutional protections spanning the First Amendment and interstate commerce provisions.

The decision has significant implications for other states exploring similar taxation approaches to digital advertising. Maryland officials had projected the levy would generate approximately $250 million annually for a comprehensive kindergarten-through-12th-grade education initiative when lawmakers approved it three years ago.

The statute imposed a tiered tax on revenue from digital ads displayed to Maryland residents, with rates escalating based on company size. Firms generating more than $100 million in worldwide annual revenue faced a 2.5 percent tax rate, which climbed to 10 percent for those exceeding $15 billion in global annual gross revenues.

The court determined that federal authority, rather than individual states, holds jurisdiction over interstate commerce regulation. Judges also cited concerns that the law relied improperly on worldwide revenue figures instead of in-state advertising income, distinguishing it from traditional print and billboard advertising taxes already on the books.

Democratic leaders including Senate President Bill Ferguson and House Speaker Joseline Pena-Melnyk expressed disagreement with the ruling, signaling continued legal engagement. “We will continue working with the Attorney General and Comptroller as this matter proceeds through the courts,” they stated in a joint announcement.