A Maryland Tax Court decision striking down Maryland’s digital advertising tax could create another significant challenge for funding the Blueprint for Maryland’s Future. The tax has generated hundreds of millions of dollars for the education plan, which already faces growing costs and long-term funding pressures.
On August 14, the Maryland Tax Court ruled that Maryland’s digital advertising tax violates federal law. The court ordered refunds of taxes paid, plus applicable interest, in separate challenges brought by Google, Apple, and Peacock TV.
The General Assembly enacted the first-in-the-nation tax in 2021 after overriding then-Governor Larry Hogan’s veto. It applies to companies with more than $100 million in annual global revenue, with rates ranging from 2.5% to 10% based on worldwide revenue.
Revenue from the tax goes to the Blueprint for Maryland’s Future Fund. When lawmakers considered the measure, the Department of Legislative Services estimated it could generate up to $250 million annually to help fund the Blueprint.
The latest ruling goes directly at the tax itself. The Tax Court found that Maryland violates the federal Internet Tax Freedom Act by taxing digital advertising while not imposing a comparable statewide tax on non-digital advertising.
The court also found that the tax violates the dormant Commerce Clause. Maryland uses a company’s global revenue to determine whether the tax applies and what rate it pays, meaning activity outside Maryland can increase the tax owed on the same amount of Maryland digital advertising revenue.
The decision comes as Blueprint costs continue to grow and Maryland faces significant structural budget pressures. If the ruling stands, the State could lose an ongoing revenue source specifically dedicated to the Blueprint while also refunding taxes already collected, plus interest.
The tax was already facing legal trouble. As previously reported on Conduit Street, the US Court of Appeals for the Fourth Circuit struck down the law’s “pass-through” provision last year, finding that restrictions on how companies could communicate the tax to customers violated the First Amendment.
Maryland can appeal the latest ruling. Stay tuned to Conduit Street for updates on the case and its potential impact on Blueprint funding and county budgets.
