Maryland Tax Court Strikes Down Digital Ad Tax as Unconstitutional

A Maryland state tax court has struck down the state's first-in-the-nation tax on digital advertising, deeming it unconstitutional and in violation of federal law. The tax, which was approved in 2021, aimed to raise about $250 million a year for K-12 education by taxing revenue from online ads shown in Maryland.

The court ruled that the tax violates the Internet Tax Freedom Act, as well as the First Amendment and the commerce and due process clauses of the U.S. Constitution. The law taxed companies with global annual gross revenues above $100 million at a 2.5% rate, increasing to 10% for those with revenues over $15 billion.

The tax court ordered Maryland to repay the tax money already collected from companies including Apple, Google, and Peacock TV. Supporters of the law argued that it was necessary to overhaul the state's tax methods in response to changing business practices.