This week, An Anne Arundel County Circuit Court judge struck down Maryland’s first-in-the-nation digital advertising tax. Judge Alison Ali held that the law violates the Commerce Clause of the US Constitution, the federal Internet Tax Freedom Act (ITFA), and the First Amendment.

Lawmakers estimated the law would raise $250 million annually from massive corporations and advertisers like Google and Facebook to help fund the Blueprint for Maryland’s Future, a multi-year, multi-billion dollar investment in Maryland schools.

Enacted by the General Assembly in February 2021 following an override of a veto by Governor Larry Hogan, the digital advertising services tax applies to annual gross revenues derived from digital advertising services in Maryland by businesses with at least $100 million in global annual gross revenues. The tax rate ranges from 2.5 to 10 percent, depending on the global annual gross revenues of the business.

Digital advertising services are “advertisement services on a digital interface, including in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” However, advertising services on digital interfaces owned or operated by a broadcast entity or news media entity are not subject to tax. In addition, affected businesses cannot directly pass on the cost of the digital advertising tax to a purchaser of digital advertising services.

The Maryland Attorney General could appeal the decision to the Maryland Court of Special Appeals, Maryland’s second highest court. In addition, the US Chamber of Commerce and others are challenging the law in federal court, with oral arguments set for next month in that case.

Stay tuned to Conduit Street for more information.