Maryland Tax Court Invalidates Digital Advertising Levy

A Maryland state tax court has invalidated the state's digital advertising tax, a move that could impact other states considering similar taxes. The tax was enacted in 2021 and aimed to raise around $250 million annually for K-12 education, but the court found it violates federal law and the US Constitution.

The Maryland Tax Court ruled that companies making more than $100 million globally must pay a 2.5% rate on digital ad revenue, increasing up to 10% for those with over $15 billion in annual gross revenues. The tax was challenged by big tech firms including Apple, Google, and Peacock TV, who argued it unfairly targeted them.

The court found that the tax law exceeded Congress's authority and infringed on free speech rights by prohibiting companies from disclosing the tax to customers. Maryland Senate President Bill Ferguson and House Speaker Joseline Pena-Melnyk expressed disagreement with the ruling but acknowledged the need for a changing economy to be reflected in the state's tax system.