Maryland’s first-in-the-nation digital advertising tax has been struck down by the Maryland Tax Court, setting up a potentially costly refund fight for the state and drawing attention from policymakers in other states considering similar taxes.
In three decisions issued Aug. 14, the court ruled in favor of Apple, Google and Peacock TV, finding that Maryland’s Digital Advertising Gross Revenues Tax violated the federal Internet Tax Freedom Act and constitutional protections involving interstate commerce, due process and free speech. The court ordered refunds of taxes paid by the three companies, with interest.
The tax was enacted in 2021, but taxpayers did not begin remitting it until tax year 2022, according to the Comptroller of Maryland. The levy applies to companies with at least $100 million in global annual gross revenue and taxes the portion of revenue attributed to digital advertising services in Maryland at rates ranging from 2.5% to 10%.
Revenue from the tax is distributed to the Blueprint for Maryland’s Future Fund, which supports the state’s K-12 education overhaul.
The ruling has quickly become a national tax-policy issue because Maryland was the first state to impose a standalone digital advertising tax.
“You see Illinois, Utah, Washington officials, they’re looking very closely at this decision because they see a preview of what might be coming for them,” Tax Foundation Senior Policy Analyst Jared Walczak told The States by The Center Square Wednesday.
Walczak said Maryland originally expected the tax to generate roughly $250 million annually, but collections came in below that level. The original annual estimate of about $250 million has also been reported in coverage of the Maryland litigation.
“They had originally projected about $250 million a year in revenue. They’ve been lower than that, but it’s been over $100 million each year,” Walczak said. “So we’re talking probably $500-700 million dollars that they have to refund in one year because this had been collected for all these years when they knew it was likely unconstitutional, but kept collecting it.”
The $500 million to $700 million figure is Walczak’s estimate, not an amount established by the Maryland Tax Court.
The Aug. 14 decisions directly involve Apple, Google and Peacock TV and require refunds of taxes those companies paid, along with interest. Other challenges to the digital advertising tax have also been filed, meaning Maryland’s potential exposure could extend beyond the three companies if the decisions survive appeals and similar arguments prevail in other cases.
Comptroller Brooke Lierman signaled disagreement with the ruling and continued defense of the law.
“I respect but strongly disagree with the decision,” Lierman said in a statement reported by Maryland Matters. “I will continue to work with the Attorney General of Maryland in defending this important law, which aligns Maryland’s tax code with the reality of today’s economy, ensures that the country’s biggest tech companies pay their fair share, and provides essential support to Maryland’s public school systems.”
The Maryland Chamber of Commerce said the ruling creates another complication for a state already confronting long-term budget pressures.
“Maryland is already confronting a projected multibillion-dollar structural budget deficit – approximately $3.1 billion and expected to grow in the years ahead,” the group said in an Aug. 18 statement. “If the digital advertising tax revenue ultimately disappears, it adds another challenge to a fiscal outlook that is already unsustainable.”
The Chamber argued that state leaders should not automatically replace the digital advertising revenue with another tax if the decision is ultimately upheld. It called for changes in spending and policies intended to expand Maryland’s economy and tax base.
The underlying legal dispute has been developing almost since the tax was enacted.
Maryland taxes revenue from digital advertising while excluding certain other advertising services. The Tax Court concluded that the distinction ran afoul of the federal Internet Tax Freedom Act, which generally prohibits discriminatory taxation of electronic commerce when comparable offline transactions are treated differently.
Bloomberg Law reported that Tax Court Judge Anthony C. Wisniewski also concluded the tax discriminated against larger interstate businesses because its rate structure depends partly on companies’ worldwide gross revenues.
The tax starts at 2.5% for covered companies with more than $100 million in global annual gross revenue and rises to 10% for companies with at least $15 billion in global annual gross revenue.
The Maryland tax had already faced a significant federal constitutional challenge before the latest decisions. A federal appeals court previously struck down a provision restricting companies from directly passing the tax through to customers in the form of a separate fee, surcharge or line item, finding First Amendment problems with that restriction. The Comptroller’s current guidance continues to describe the tax and its filing requirements while the litigation proceeds.
Walczak said the latest decision could have implications far beyond Maryland.
“Utah and Illinois just adopted digital advertising taxes this year. And then Washington does it a little differently,” he said. “But they did put digital advertising within their sales tax. So those three states very much have exposure here if this ruling is replicated elsewhere, as I think it very much could be.”
Maryland’s Tax Court decisions do not automatically invalidate taxes imposed by Illinois, Utah or Washington. Courts considering challenges in those states would have to evaluate their individual laws and circumstances. However, Maryland’s interpretation of the federal Internet Tax Freedom Act could provide arguments for businesses challenging other state taxes on digital commerce.
Washington, for example, applies its sales tax to digital advertising services, with Google telling advertisers that the state began applying sales tax to digital advertising in October 2025.
For Maryland, the immediate issues are whether the Comptroller and Attorney General pursue appeals, how much must ultimately be refunded and what the loss of digital advertising revenue could mean for the Blueprint for Maryland’s Future.
The Maryland Chamber says the uncertainty illustrates the danger of using contested revenue sources to fund recurring state obligations.
“The ruling also underscores the risks of relying on contested revenue to support ongoing spending,” the Chamber said. “Years of litigation create uncertainty not only for businesses making long-term investment decisions, but also for a state trying to responsibly plan for its fiscal future.”
One distinction is important in assessing the size of any refund.
Although Maryland enacted the digital advertising tax in 2021, the Comptroller says taxpayers began remitting the tax in tax year 2022. The first estimated payments were due in 2022. That means Maryland has collected the tax for roughly four years, rather than more than five years.
The law itself, however, has been tied up in litigation for much of the five years since its enactment.
If the Aug. 14 decisions survive the appeals process, Maryland’s case could become an important precedent in the growing national debate over whether states can impose taxes specifically targeting digital advertising and other forms of electronic commerce.
