Maryland Tax Court strikes down digital advertising tax

The Maryland Tax Court has struck down the state’s digital advertising tax, ruling it unconstitutional under federal law. The court found the tax violated the Internet Tax Freedom Act (ITFA), the Commerce Clause, and the Due Process Clause. Specifically, the ruling noted that the tax discriminated against e-commerce by singling out digital advertising while failing to tax similar offline mediums such as billboards, television commercials, and newspaper advertisements.

Passed in 2021 after a legislative override of a gubernatorial veto, the tax was intended to target large technology companies. However, critics argued the costs were ultimately passed down to small businesses and consumers. The state has collected more than $400 million through the tax, which was earmarked for the Blueprint for Maryland’s Future. The court has ordered that refunds be paid to taxpayers for the past five and a half years of collections, though these refunds will likely be stayed pending upcoming appeals.

The ruling is being closely watched by legislators in other states considering similar digital advertising taxes.