Maryland Digital Ad Tax Struck Down; Google, Peacock, Apple Win Refunds

Maryland Court Invalidates First-in-Nation Digital Ad Tax

Maryland’s Tax Court has struck down the state’s 2021 digital advertising tax, the first law of its kind in the United States, and has ordered refunds to Google, Peacock and Apple, the companies that challenged the statute. The ruling, issued Friday, eliminates, for now, a levy that applied to online companies with more than $100 million in global digital ad revenue.

The tax was structured in tiers, with rates ranging from 2.5% of Maryland-attributable revenue for companies earning between $100 million and $1 billion globally, to 10% for companies reporting more than $15 billion in worldwide digital ad revenue. The measure exempted news media entities and broadcasters that sell digital ads, and was enacted over the veto of former Governor Larry Hogan.

The court invalidated the law on two central grounds: it conflicts with the federal Internet Tax Freedom Act, and its news and broadcast exemptions violate the First Amendment. Maryland Comptroller Brooke Lierman said she strongly disagrees and will work with the Attorney General to appeal, while the Association of National Advertisers said it hopes other states abandon similar taxes.

Why the Maryland Digital Ad Tax Fell

Internet Tax Freedom Act Conflict

The court leaned on the 1998 federal prohibition against taxing internet services unless similar non-digital services are taxed. It concluded that digital advertising is indistinguishable from non-digital advertising in the broader advertising industry, so Maryland could not single out digital ad sales under the current statute.

First Amendment Problem in the Exemptions

The news media and broadcast exemptions were also found content-based. The court said the definitions required judging a publication’s primary purpose, which could discourage outlets from drifting into aggregation or republishing content and invited discrimination on the basis of speech.

What This Signals for Google, Peacock and Apple

The immediate effect is financial relief: the tax is invalid and refunds are ordered, but the comptroller’s intended appeal means the liability could return. The deeper implication is that state digital advertising taxes structured around content-based carve-outs are now vulnerable on both statutory and constitutional grounds.

The Effect on Other State Digital Ad Taxes

Washington state recently enacted a tax on online advertising services, and Comcast has sued under the same federal law. Maryland’s decision does not bind Washington courts, but it gives challengers a detailed state-level precedent and likely strengthens the legal case against similar statutes.

What the Ruling Means for Ad Platforms and State Tax Plans

• Digital ad platforms with Maryland exposure: Treat the tax as unenforceable for now, but retain records and reserves because Comptroller Lierman is pursuing an appeal and the refunds are not yet final.
• Companies challenging Washington’s online advertising tax: Maryland’s Internet Tax Freedom Act reasoning can be cited as persuasive, but Washington courts are not bound by the Maryland Tax Court, so watch the Comcast case for a decisive ruling in that jurisdiction.
• State policymakers considering similar levies: The Maryland outcome shows that exempting news and broadcast sellers while taxing other digital ad platforms invites First Amendment and Internet Tax Freedom Act challenges; any new proposal would need to address the taxation of comparable non-digital advertising services.
• News and broadcast entities selling digital ads: Because the entire statute is struck down, the exemption currently has no effect; if Maryland revises rather than abandons the tax, the definitions of news media and broadcast entity will be the central drafting challenge.