First Ever Digital Ad Tax, Chopped by Maryland Judge

America’s first and only digital tax proposal has been denied by a Maryland judge, declaring it unconstitutional. This is seen as a major victory for tech giants (Apple, Facebook, Google, etc.), who do most of their advertising in the digital space. The tax was introduced in 2021 by Maryland legislators, but it wasn’t well received from the start.

The Proposal + Legal Concerns

The state introduced the bill in 2021, and it was set to apply to companies with over $1 million in gross revenue from digital advertising services in Maryland and $100 million in annual gross revenues. The tax Foundation raised some legal alarms with this new tax proposal, regarding definitional ambiguity, suspect sourcing rules, and unworkable geolocation requirements. The taxation scheme seemed to be targeting the tech giants like Facebook, Google, and Apple, and the law deemed it unconstitutional.

Reasons Behind The Decision

The tax, despite the initial resistance, was enacted on January 1^st, 2021 with the first payments due on April 15^th, 2022. That has since been axed as of October 17^th, when the Anne Arundel County Circuit Court ruled in favor of Verizon and Comcast who challenged the Maryland state court in April of 2021. They noted that the digital tax:

• violates the US Constitution’s prohibition on state interference with interstate commerce.

• discriminates against certain online companies while not taxing others.

• violates the federal Internet Tax Freedom Act’s prohibition on discriminatory taxes on online services since Maryland does not similarly tax non-digital advertising.

• violates the First Amendment because it is “not viewpoint neutral.” For instance, while tech giants Facebook, Google, and Amazon, are taxed, online news sites aren’t.

• violates the First Amendment because it is “not viewpoint neutral.” For instance, while tech giants Facebook, Google, and Amazon, are taxed, online news sites aren’t.

Wrap Up

As it stands today, Maryland is the only state in the country to have enacted a digital ad revenue tax like this one, however, it is not the only state to have weighed in on this topic. Bills like this have been introduced in more than a dozen states including, New York, Connecticut, Massachusetts, and Texas.