Maryland Enacts New Tax on Digital Advertising

The Maryland legislature overrode Governor Larry Hogan’s veto of a new tax on digital advertising (H.B. 732) on February 12, 2021, making Maryland the first state in the country to adopt a tax on digital advertising. 

The new tax on revenue earned from digital advertising applies a graduated rate based on the taxpayer’s global annual revenue applied to an assessable base (annual gross revenues derived from digital advertising services in the state) and is effective for tax year 2021. Each person that, in a calendar year, has annual gross revenue derived from digital advertising services in the state of Maryland of at least $1 million must file a return with the Maryland Comptroller on or before April 15 of the next year and pay quarterly estimated taxes. Each person that reasonably expects their annual gross revenue derived from digital advertising services in the state of Maryland to exceed $1 million must file a declaration of estimated tax on or before April 15 of that year and complete quarterly estimated tax returns.

The digital advertising tax will be imposed at the following rates:

• 2.5% of the assessable base for persons with global annual gross revenues of $100 million through $1 billion
• 5% of the assessable base for persons with global annual gross revenues of more than $1 billion through $5 billion
• 7.5% of the assessable base for persons with global annual gross revenues of more than $5 billion through $15 billion
• 10% of the assessable base for persons with global annual gross revenues exceeding $15 billion

According to the legislation, digital advertising services include advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services. A “digital interface” is any type of software, including a website, part of a website, or application, that a user is able to access.

Under the Maryland Constitution, veto override legislation is effective 30 days after the override vote, March 14, 2021 in this case. However, litigation is expected for this controversial tax. (H.B. 732,  Laws 2020, effective as noted above)

UPDATE: The U.S. Chamber of Commerce and groups such as the Internet Association, whose members include Amazon, Facebook and Google, have filed a lawsuit over the digital advertising tax implemented in Maryland one week prior. They argue that this tax (the first of its kind) is unconstitutional and incompatible with federal laws that prohibit targeting online services on the state level (Civil No. 21-cv-410, D. Md., filed February 18, 2021).   

UPDATE: A Maryland Circuit Court judge ruled against the state and declared the state’s digital advertising tax in violation of the US Constitution in a summary judgement. The state level case, brought against the Comptroller of the Treasury of Maryland by multiple Comcast subsidiaries and Verizon Media, argued that the tax infringed upon the Internet Tax Freedom Act, the dormant commerce clause of the constitution, and the First Amendment. The judge agreed, ruling that the tax on digital advertising violated the Internet Tax Freedom Act, as there is no similar tax for nondigital advertising in the state, and the First Amendment, by exempting news media from the tax. The Maryland Attorney General’s office is currently reviewing their options and the ruling to determine their next steps. The law remains under challenge in federal court, in a case that also focuses on the ability of companies subject to the law to pass-through the tax to their customers. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia LLC et al. v. Comptroller of the Treasury of Maryland, C-02-CV-21-000509, Circuit Court for Anne Arundel County.

UPDATE: The Maryland Supreme Court overturned and vacated the Circuit Court for Anne Arundel County’s ruling that the state’s digital advertising tax is unconstitutional. The Maryland Supreme Court issued a per curiam order on May 9, 2023 and issued an opinion on July 12, 2023, explaining their reasoning behind vacating the lower court’s order and reinstating the digital advertising tax. The Maryland Supreme Court remanded the case back to the Circuit Court for Anne Arundel County with orders to dismiss. The Maryland Supreme Court determined that Comcast and Verizon had failed to exhaust their administrative remedies before bringing the court challenge against the digital advertising tax. The Maryland Supreme Court’s opinion was unanimous, stating that the Circuit Court lacked the jurisdiction to hear the case. The Maryland Supreme Court’s opinion did not address the constitutional and Internet Tax Freedom Act challenges brought by Comcast and Verizon. Rather, it focused on the failure to exhaust administrative remedies. Comcast and Verizon had invoked the constitutional exception to the administrative exhaustion requirement. The constitutional exception generally “permits a judicial determination without administrative exhaustion when there is a direct attack upon the power or authority . . . of the legislative body to adopt the legislation from which relief is sought.” However, the Maryland Supreme Court rejected it, stating that the constitutional exception is extremely narrow and is subject to specific limitations. (Comptroller of Maryland v. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia LLC et al., case number 32, in the Maryland Supreme Court)

NEWEST UPDATE: In a closely watched legal challenge, a coalition of trade associations—including the U.S. Chamber of Commerce—filed suit against Maryland’s Comptroller of the Treasury over a 2021 law that imposes a progressive tax on digital advertising revenues. The statute imposes a 2.5% tax on companies offering digital advertising services that earn at least $100 million in global annual revenue. The rate increases up to 10% for those whose global revenue exceeds $15 billion.

This case only was challenging the “pass-through provision” which lies at the heart of the dispute, as it prohibits companies from explicitly itemizing the tax on customer invoices as either a separate fee, a surcharge, or a line item on the invoice. The Plaintiffs argued that this restriction constitutes a violation of the First Amendment, as it limits their ability to communicate truthful, politically relevant information.

The Fourth Circuit Court of Appeals agreed that the provision is a content-based restriction on speech. In a sharply worded opinion, the court drew historical parallels to colonial resistance against the Stamp Act, emphasizing that “complaining about taxes remains a grand American political tradition.” The judges concluded that Maryland’s attempt to suppress such discourse by preventing companies from attributing price increases to the tax was not narrowly tailored to any substantial government interest and failed even intermediate scrutiny.

While the district court had previously dismissed the plaintiffs’ facial challenge, the Fourth Circuit reversed that decision, holding that the pass-through provision is unconstitutional in all its applications. The case has now been remanded to the district court for it to determine the appropriate remedy. The case could be appealed next to the U.S. Supreme Court, but for now, the Fourth Circuit has remanded the case back to the district court to determine the scope of injunctive relief. (Under Trump v. CASA, district courts case no longer offer universal injunctions as a matter of course.) Other separate pending cases continue to challenge the Maryland digital advertising tax on Commerce Clause and Internet Tax Freedom Act grounds. See https://www.salestaxinstitute.com/resources/maryland-tax-court-allows-apple-challenge-to-digital-advertising-tax-to-move-forward (Chamber of Commerce of the United States of America v. Lierman, No. 24-1727 (4th Cir. Aug. 15, 2025)

UPDATE: U.S. District Judge Lydia Kay Griggsby released an order permanently barring the state of Maryland from imposing a provision in its digital advertising tax that prevented tech companies from directly passing the amount of the tax on to customers. The provision came under fire for unfairly suppressing companies’ ability to explain the tax to customers, and it seems the courts agree since the three-judge panel were unanimous in their decision.

This marks the final judgement that followed a joint status report, which agreed with the circuit court (Chamber of Commerce of the United States of America v. Lierman, No. 1:21-cv-00410-LKG, slip op. at 2 (D. Md. Oct. 15, 2025).