On October 17, 2022, a Maryland state judge in the Circuit Court of Anne Arundel County struck down the state’s Digital Advertising Tax (“Digital Ad Tax”) as violating the Internet Tax Freedom Act (“ITFA”) and the Commerce Clause and First Amendment of the U.S. Constitution. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia LLC, et al. v. Comptroller of the Treasury of Maryland, Case No. C-02-CV-21-000509 (Md. Cir. Ct. Anne Arundel Cnty.). The judge issued her ruling from the bench following a hearing and we expect her to issue a written order in the near future.
The judge concluded that the Digital Ad Tax discriminates against electronic commerce in violation of ITFA because it applies to digital advertising, but not traditional advertising. Additionally, the judge concluded that the Digital Ad Tax violates the Commerce Clause because the tax rate is calculated based on a taxpayer’s global annual revenues and the tax targets specific companies. We agree with the judge’s reasoning on each of these issues, as discussed in our previous blog posts. (See our prior coverage of the Digital Ad Tax here, here, and here.) The Maryland Comptroller may appeal the judge’s order.
In light of the ruling, taxpayers should consider their options and develop a strategy for seeking refunds with respect to the Digital Ad Tax payments made for the first three quarters of 2022.
Meanwhile, other states considering legislation similar to Maryland’s first-of-its-kind Digital Ad Tax should be wary that these taxes may be invalid on similar grounds as Maryland’s Digital Ad Tax.