Maryland Tax Court Strikes Down Illegal Digital Ad Tax

Maryland’s Tax Court has struck down the state’s digital advertising tax ruling it illegal under federal law. The legislation was passed in 2021 after Maryland Democrats overrode a veto from then-Governor Hogan. The digital advertising tax targeted large technology companies with a tax on digital advertising revenue. Senate minority officials say that while the tax was supposed to be on “Big Tech” – it was small businesses and customers who were paying the price. More than $400-million has been collected through this tax which Maryland may now have to return. Revenue from the tax has been earmarked to help fund the Blueprint for Maryland’s Future, but could now add more pressure to the state’s projected deficit next year.

Additional information from the Maryland Senate Republican Caucus:

“Senate Republicans warned from day one that Maryland’s first-in-the-nation digital advertising tax was unconstitutional. We said it when the bill passed, we said it when Governor Hogan vetoed it, and we said it again when Democrats overrode that veto. Today, the court confirmed what we warned them about all along,” Hershey said.

Democrats first passed the tax in 2021 over Governor Hogan’s veto, targeting large technology companies with a tax on digital advertising revenue. At the time, Democrats included language in the bill attempting to bar companies from passing the cost directly to consumers, insisting the tax would fall only on Big Tech.

“This was sold as a tax on ‘Big Tech,’ but it was always Maryland businesses, particularly small businesses that depend on digital advertising to reach customers, that would ultimately pay the price,” Hershey said. “Democrats even tried to write into the bill that companies couldn’t pass the cost down to consumers. Anyone who understands how business works knew that promise was never going to hold up, and it didn’t.”

Senate Minority Whip Justin Ready said the ruling is the latest example of Annapolis Democrats writing checks the law would not let them cash.

“Democrats built an entire funding stream on a tax they were told from the very beginning would not survive a court challenge, and small businesses across Maryland paid the price for that gamble while it lasted,” Ready said. “You cannot legislate around the Constitution.  Maryland continued collecting this unconstitutional tax while the case worked its way through the courts. More than $400 million has already been collected, and the state could now be forced to give that money back, with interest. I hope the Comptroller kept those dollars available, because Maryland taxpayers should not be left holding the bag for a tax the General Assembly was repeatedly warned was unconstitutional.”

Revenue from the tax was earmarked to help fund the Blueprint for Maryland’s Future, and its loss adds new pressure to a state budget already facing a projected structural deficit of more than $3 billion next year.

“When we return to Annapolis in January, an already difficult budget picture may be substantially worse. Democrats counted on this revenue to fund their spending. Now that revenue is in jeopardy, hundreds of millions already collected may have to be returned, and taxpayers will once again be expected to clean up the mess,” Hershey said.