Maryland's Digital Ad Tax Declared Unconstitutional

A Maryland state tax court has struck down the state's first-in-the-nation digital advertising tax, ordering state officials to repay the tax money already collected from tech giants Apple, Google, and Peacock TV. The tax was enacted in 2021 with the goal of raising around $250 million annually for K-12 education initiatives.

The court ruled that the tax violates the federal Internet Tax Freedom Act as well as the First Amendment and the commerce and due process clauses of the U.S. Constitution. The tax law taxed revenue from digital advertisements shown in Maryland, with companies making more than $100 million in global annual gross revenues subject to a 2.5% rate.

The court found that Congress, not the state legislature, is tasked with regulating interstate commerce. As such, the tax law was deemed inappropriately based on global revenue rather than revenue from in-state advertising.

Supporters of the law argued that it was necessary to overhaul Maryland's tax methods due to significant changes in how businesses advertise. However, attorneys representing Big Tech companies challenged the law, claiming they were unfairly targeted and arguing that the tax violated their right to free speech.