Maryland’s first-in-the-nation digital advertising tax faces another legal setback. On August 15, the US Court of Appeals for the Fourth Circuit struck down a central provision of the law, ruling that the ban on disclosing the tax to customers violates the First Amendment.
Background on the Tax
Enacted in 2021 after a gubernatorial veto override, the tax applies to digital advertising services sold in Maryland by companies with more than $100 million in global annual revenue.
Rates range from 2.5% to 10%, depending on the company’s worldwide revenues.
The Department of Legislative Services projected that the measure could raise as much as $250 million annually, with the revenues dedicated to the Blueprint for Maryland’s Future, a multi-year, multi-billion-dollar plan for education reform.
The “Pass-Through” Provision
One of the most controversial aspects of the law was its so-called “pass-through” ban, which prohibited companies from separately itemizing the tax cost on invoices, bills, or contracts. Companies could raise prices to cover the cost, but could not directly tie the increase to the tax.
Industry groups, including the US Chamber of Commerce, challenged the measure, arguing it restricted constitutionally protected speech.
District Court vs. Appeals Court
As previously reported on Conduit Street, in 2024, a federal district court acknowledged that the provision raised First Amendment issues but ultimately upheld it. The district court characterized the restriction as a regulation of conduct, not speech.
The Fourth Circuit disagreed. A three-judge panel unanimously ruled that the provision imposed a content-based restriction on how companies communicate about pricing and, therefore, failed constitutional scrutiny. The court concluded the restriction was unconstitutional in all of its applications.
What’s Next?
The case now returns to the district court for a ruling on remedies, as recent Supreme Court precedent limits the scope of injunctive relief. Meanwhile, a separate challenge to the broader digital ad tax itself is pending before the Maryland Tax Court.
For now, the digital ad tax remains on the books, but the Fourth Circuit’s ruling removes the State’s attempt to silence companies from explaining the tax to their customers. With appeals still pending and related litigation ongoing, the ultimate fate of Maryland’s digital advertising tax — and its role in funding the Blueprint — remains uncertain.
Previous Conduit Street Coverage
Federal Court Upholds Maryland’s Digital Ad Tax
MD Supreme Court Reverses Lower Court, Upholds State’s Digital Ad Tax