Digital Ad Tax Struck Down in Maryland Court - What Businesses Need to Know

What was the tax and how was it proposed to work?

The first-of-its-kind digital advertising tax was enacted last year by the Maryland General Assembly. This law would tax an organization’s revenue derived from digital advertising attributable to Maryland.

The proposed tax rate varies based on an organization’s global gross revenue. Specifically, organizations making over $100 million would be taxed at 2.5%; organizations making $1 billion or more would be taxed at 5%; organizations making $5 billion or more would be taxed at 7.5%; and organizations making $15 billion or more would be taxed at 10%.

What happened in court?

Judge Alison Asti, who ruled this law unconstitutional, reasoned that it violates the U.S. Constitution’s prevention of state interference with interstate commerce. Judge Asti also ruled that this law disfavors electronic commerce, in violation of the federal Internet Tax Freedom Act.

It is estimated that this tax could raise $250 million a year for the state of Maryland. As of today, there is no inclination as to whether the ruling will be challenged.

What does this mean for businesses?

Although no action is required from businesses for now, as this decision is being reviewed, other states continue to look for an opportunity to bring on a similar tax for online advertisements. This means that if your company sells online advertising, you may want to keep informed as this decision is reviewed and other states attempt to enact similar tax laws in their jurisdictions.

‍If you have questions about this proposed tax law, the ruling, or other state tax laws, please contact our State and Local Tax Director, Mike Ginski.