State Judge Strikes Down Digital Ad Tax

The nation's first tax on digital advertising has been struck down by a judge in Anne Arundel County, Maryland, reports the WTOP website.

Judge Alison Asti ruled from the bench in favor of Comcast et al., in the case against Maryland’s Office of the Comptroller.

Asti of Anne Arundel County Circuit Court said the Maryland law violates the U.S. Constitution’s prohibition on state interference with interstate commerce. She also ruled that it violates the federal Internet Tax Freedom Act, which prohibits discrimination against electronic commerce.

The Maryland General Assembly, which is controlled by Democrats, approved the tax on internet advertising over the veto of Gov. Larry Hogan in 2021.

The state estimated the tax on digital advertising could raise about $250 million a year to help pay for a sweeping K-12 education measure to expand early childhood education, increase teacher salaries, boost college and career readiness and help struggling schools.

Verizon Media Inc. and Comcast challenged the law in the state’s court. The law also is being challenged in federal court by the U.S. Chamber of Commerce. Oral arguments in that case are scheduled for Nov. 29.

The Maryland law’s fate in the courts is being closely watched by other states that have also weighed a similar tax for online ads.

The law would have taxed revenue that the affected companies make on digital advertisements shown in Maryland.

The tax rate would have been 2.5% for businesses making more than $100 million in global gross annual revenue; 5% for companies making $1 billion or more; 7.5% for companies making $5 billion or more and 10% for companies making $15 billion or more.