A Maryland judge struck down Maryland’s digital advertising tax on Monday October 17th. The tax, enacted over Governor Hogan’s veto was set to raise funds to pay for a K-12 education measure to expand early childhood education, increase teacher salaries, boost college and career readiness, and help struggling schools.
The digital ad tax imposes tax on gross revenue derived from digital advertising services in Maryland at graduated rates, from a minimum of 2.5% to a maximum of 10%. The tax was being challenged in state court by Verizon Media and Comcast. The tax was also being challenged in federal court by the U.S. Chamber of Commerce with oral arguments set to begin in late November.
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In the ruling striking down the tax, Judge Alison Asti of Anne Arundel County Circuit Court stated 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.
Both the Maryland Attorney General and the Comptroller are reviewing the decision and considering next steps. The Maryland digital tax cases are being closely watched by other states that have also weighed a similar tax for online ads.
For questions regarding the Digital Tax, contact trusted advisors of the REDW’s state and local tax (SALT) team below.