Summary
Summary
Overview of Maryland’s Digital Advertising Tax and its enactment, including the criteria for businesses to be taxed and the major tech companies challenging the tax.
In one of the most-followed cases in the last period, considering the taxation of the digital economy, the Maryland Tax Court(Court) struck down the state’s digital advertising tax, ruling in favour of plaintiffs in three separate decisions.
Maryland Digital Advertising Tax
Maryland enacted the Digital Advertising Tax back in 2021, and was effective since its enactment. Maryland was the first US state to enact this type of tax across the nation. The State’s Revenue Administration was actively collecting the Digital Advertising Tax, sharing that for the 2022 calendar year it collected around USD 93 million, and around USD 82 million in 2023.
The tax applies to businesses that meet three criteria:
- At least $100 million in global annual gross revenues.
- At least $1 million in annual gross revenues from digital advertising services in Maryland.
- Revenue derived from digital advertising services that is not specifically exempt.
Major tech companies like Apple, Google, and Peacock TV challenged the tax immediately.
The statute around which the gross digital advertising tax is established defines digital advertising services in a way that should include under the tax base, at least the following: ”advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.”
The same statute excludes: “advertisement services on digital interfaces owned or operated by or operated on behalf of a broadcast entity or news media entity.”
Currently, Maryland sales tax framework does not apply to a comparable set of services, such as nondigital advertising services, including physical billboards, print magazines, newspapers, direct mail, broadcast radio, or broadcast television advertising.
Case Background
On August 14, 2026, the Maryland Tax Court issued three companion decisions invalidating Maryland’s Digital Advertising Gross Revenues Tax, marking the first substantive merits decisions on the tax.
The Court ordered that the state should reimburse plaintiffs for five and a half years’ worth of collected digital advertising tax. The Court struck down the state’s digital advertising tax on a few substantive merits, concluding on the grounds that the state’s digital advertising tax violates the Internet Tax Freedom Act(ITFA), the Commerce Clause, and the Due Process Clause.
Even if the Court decided in favour of plaintiffs “merely” on the ground of a single federal law violation or that the law is unconstitutional, the decisions would still be in favour of the plaintiffs.
The court granted summary judgment to the taxpayers in Apple Inc. v. Comptroller of Maryland, Google LLC v. Comptroller of Maryland, and Peacock TV, LLC v. Comptroller of Maryland and ordered the state to pay refunds with interest to the petitioners.
The Court’s decision is of major importance for the plaintiffs, businesses that are part of a similar sector, and for the State of Maryland, as the state’s Digital Advertising Tax is the first tax of this kind enacted across the US.
The decisions represent a significant victory for taxpayers and a major setback for Maryland’s first-in-the-nation attempt to tax digital advertising revenue.
The Court’s Decisions
Even though the court issued three separate decisions(one per petitioner), the grounds for the decisions are very similar, with a very similar positive ruling in favor of the plaintiff.
The court decided that the Maryland Digital Advertising Tax violated the Internet Tax Freedom Act (ITFA), the Dormant Commerce Clause, and the Due Process Clause.
Internet Tax Freedom Act Violation
The court’s first part of the decision was driven by the review of the ITFA, under which it is prohibited for state and local governments to impose “discriminatory taxes” on electronic commerce if the “similar” taxes aren’t imposed on the similar property, goods, services, or information accomplished through other means.
The court hearings and in-depth review of the regulations, policies, and similar cases led the court with the conclusion that the “digital advertising services” defined under the statute are “similar” to nondigital advertising services for purposes of the ITFA’s “antidiscrimination provision.”
Digital Tax Act and Commerce Clause Violation
State’s Digital Advertising Tax has a graduated-rate structure that is dependent on the digital platform’s gross revenue made worldwide, and it’s not based primarily on the gross revenue made in Maryland. The court concluded that this taxation rate matrix is defined in principle by the digital platform’s global revenue, and not in the first place by the Maryland gross income.
The Court concluded that the Digital Tax Act violates the Commerce Clause, as the graduated rates on global revenues violate the Complete Auto test(four-part legal standard) because it is not fairly apportioned, and because it lacks external consistency since the tax is on activity outside Maryland.
Digital Tax Act and Due Process Clause
The Due Process Clause requires (1) a minimal connection or nexus between the taxing state and the person, property, or transaction being taxed, and (2) a rational relationship between the income or value attributed to the state and the intrastate values of the enterprise.”
The court decided that the Digital Ad Tax violates the second requirement of the Due Process Clause, following the same notes held for the violation of the “fair apportionment” under the Commerce Clause, that under the second requirement of the Due Process Clause, the tax is discriminatory.
Final Remarks
This is a major triumph for petitioners,i.e., Apple Inc, Google LLC, and Peacock TV LLC. It shouldn’t be forgotten that the Maryland Tax Court is an administrative tribunal, and that the state will most probably look for a judicial review by the circuit court.
The party that loses the legal “battle” in the circuit court will have the right to appeal to the state’s appellate court. However, there are many doubts surrounding the “different” outcome of the ruling that will be reached after the circuit court review of the case.
The state has 30 days to decide whether it will move forward with the application for the judicial review of the case lost before the Maryland Tax Court.
Takeaway
The Maryland Court’s Decision, which ruled in favour of the petitioners, implies the state’s obligation for a full reimbursement of the taxes collected in the last four and a half years could have a much wider effect, above the “financial part.”
Author: Aleksandar Delic
If the State decides not to pursue the judicial review of the Administrative Court’s decision, the Court’s decision becomes effective, and the Digital Advertising Tax in that scenario will be struck down.
This major setback for Maryland tax policies could have an intrastate effect, taking into consideration that the states of Utah and Illinois have adopted similar statewide Digital Advertising Taxes earlier this year.
Indirect Tax Manager – E-Commerce
Frequently Asked Questions
The Maryland Digital Advertising Gross Revenues Tax is a tax targeting revenue derived from digital advertising services in Maryland.
Introduced in 2021, it was the first state-level digital advertising tax of its kind in the United States and covers activities such as banner advertising, search engine advertising, interstitial advertising, and comparable advertising services
The tax targets businesses meeting the relevant statutory conditions, including businesses with at least USD 100 million in global annual gross revenues and at least USD 1 million in annual gross revenues from digital advertising services attributable to Maryland.
The relevant digital advertising revenue must also fall within the taxable scope rather than a statutory exemption.
On August 14, 2026, the Maryland Tax Court issued three companion decisions ruling against the state’s Digital Advertising Tax.
The decisions concerned challenges brought by Apple Inc., Google LLC, and Peacock TV LLC. The Tax Court granted summary judgment to the taxpayers and concluded that the tax violated federal statutory and constitutional requirements.
The Maryland Tax Court identified three principal legal problems with the tax:
Violation of the Internet Tax Freedom Act
Violation of the Dormant Commerce Clause
Violation of the Due Process Clause
Each issue concerns fundamental limitations on how states can design and impose taxes affecting interstate and electronic commerce.
Not necessarily.
The Maryland Tax Court is an administrative tribunal, meaning the August 2026 decisions may be subject to judicial review. Further proceedings could therefore determine the ultimate legal status of Maryland’s Digital Advertising Tax.
Businesses affected by the tax should consequently monitor subsequent litigation rather than treating the August decisions as necessarily the final stage of the dispute
The Tax Court’s decisions ordered refunds, with interest, to the petitioners involved in the cases.
The broader refund consequences for other taxpayers will depend on their individual circumstances, procedural requirements, applicable limitation periods, and the outcome of any further judicial proceedings.
Businesses that have previously paid Maryland Digital Advertising Tax should therefore review whether they have protective refund or other procedural rights.