On August 14, 2026, the Maryland Tax Court issued three companion decisions invalidating Maryland’s Digital Advertising Gross Revenues Tax, marking the first substantive merits decisions on the tax.
The court granted summary judgment to the taxpayers in Apple Inc. v. Comptroller of Maryland, Google LLC v. Comptroller of Maryland, and Peacock TV, LLC v. Comptroller of Maryland and ordered the state to pay refunds with interest to the petitioners.
The decisions represent a significant victory for taxpayers and a major setback for Maryland’s first-in-the-nation attempt to tax digital advertising revenue.
How the Tax Works
Maryland enacted its digital advertising tax in 2021, becoming the first state in the nation to impose a tax specifically targeting digital advertising revenues.
The tax applies to businesses that meet three criteria:
- At least $100 million in global annual gross revenues.
- At least $1 million in annual gross revenues from digital advertising services in Maryland.
- Revenue derived from digital advertising services that is not specifically exempt.
The statute defines “digital advertising services” to include “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” It excludes “advertisement services on digital interfaces owned or operated by or operated on behalf of a broadcast entity or news media entity.”
Maryland does not impose a comparable statewide tax on nondigital advertising services, including physical billboards, print magazines, newspapers, direct mail, broadcast radio, or broadcast television advertising.
The Court’s Decisions
Although the court issued a decision for each petitioner, the three decisions reached nearly identical holdings. The court held that the tax violated the Internet Tax Freedom Act (ITFA), the Dormant Commerce Clause, and the Due Process Clause. Peacock also raised First Amendment and Foreign Commerce Clause challenges.
Court finds Internet Tax Freedom Act violation
The court’s analysis focused on the ITFA, which prohibits state and local governments from imposing “discriminatory taxes” on electronic commerce, defined as taxes “not generally imposed” on “similar property, goods, services, or information accomplished through other means.”
The court held hearings on the meaning of “similar” under the ITFA and its application to digital and nondigital advertising. Expert and fact witnesses testified on whether digital advertising services are “similar” to nondigital advertising services for purposes of the ITFA’s antidiscrimination provision.
Following the hearings, the court concluded that the services are “similar” and that Maryland’s tax on digital advertising services therefore violates the ITFA. The court adopted a broad, purpose-based interpretation of what makes digital and nondigital advertising “similar,” reasoning that both serve the same purpose: “i.e., to make an impression on receivers of the advertising that leads to a sale of goods or other action.”
While there was little precedent for the court to draw from, the court was persuaded in part by Performance Marketing Ass’n, Inc. v. Hamer, in which the Illinois Supreme Court found a clear ITFA violation where online advertising was taxed but comparable print and broadcast advertising was not.
The court also found that the ITFA’s language constitutes a “clear and manifest” expression of congressional intent to prohibit state discrimination against internet services. It therefore held that the Supremacy Clause applies and preempts the Maryland law. The court added that, regardless of whether the ITFA creates a private right of action, taxpayers may rely on the ITFA as a defense against the state tax.
The Comptroller of Maryland argued that the ITFA is unconstitutional under Murphy v. National Collegiate Athletic Association as an impermissible “anti-commandeering” statute. The court rejected that argument, finding Murphy inapposite because Congress has plenary authority over interstate commerce under the Commerce Clause.
Tax fails Commerce Clause tests
Although the ITFA accounted for much of the court’s analysis, the decisions also provide a thorough analysis of the Digital Advertising Gross Revenues Tax’s constitutional shortcomings.
Two aspects of the constitutional analysis are particularly interesting because they add useful precedent on aspects of the Complete Auto analysis where recent authority is limited.
The court found that the tax failed the fair-apportionment prong of the Complete Auto test because it is unfairly apportioned “in both theory and in fact.” The tax uses a graduated rate, which increases based on global revenues that are not tied to Maryland activity. The court reasoned that the graduated rate schedule does not reasonably reflect the in-state component of the digital advertising activity being taxed.
The court also relied on the “external consistency” test, which asks whether a state tax reaches beyond the portion of value fairly attributable to economic activity within the taxing state. The court concluded that the tax fails that test because its graduated rate schedule is tied to a taxpayer’s global revenues rather than its Maryland activity.
Court finds Due Process Clause violation
The court held that the tax violates the Due Process Clause because it taxes extraterritorial values.
The court also found that the tax fails the Due Process Clause analysis because it lacks a “rational relationship between the income attributed to the State and the intrastate values of the enterprise” under ConAgra Foods RDM, Inc. v. Comptroller of the Treasury.
Foreign Commerce Clause challenge rejected
Peacock separately argued that Maryland’s tax violates the Foreign Commerce Clause. The court rejected that argument, finding that it was “not convinced” the tax “would invite global economic fragmentation” if other states adopted similar taxes. The court denied Peacock’s motion on this count. The court granted the Comptroller of Maryland’s cross-motion on this issue alone.
First Amendment challenge succeeds
Peacock also argued that the exemption for broadcast and news media entities violates the First Amendment by requiring content-based distinctions. The court noted that the terms “news” and “primarily” are vague and undefined in the exemption, a problem it described as “usually fatal” for statutes touching upon press activities.
The court sided with the petitioners on this point but suggested in a footnote that this exemption may be severable from the remainder of the tax.
What the Decision Means for State Digital Advertising Taxes
The decisions are the first substantive merits rulings on Maryland’s Digital Advertising Gross Revenues Tax and establish that the tax, as enacted and administered, is invalid under the ITFA and multiple constitutional provisions.
The decisions also confirm our long-standing view that a tax targeting digital advertising without applying equally to nondigital advertising faces significant legal obstacles under both the ITFA and constitutional provisions.
The court noted, however, that the result might have been different if Maryland had imposed a similar tax on nondigital advertising services or a uniform sales tax on all advertising regardless of medium or global revenues. That observation could provide a potential path for state legislatures seeking to tax advertising revenues in the future.
Washington state’s recent approach of taxing both digital and nondigital advertising under a general sales tax comes closest to this model, although exemptions for out-of-home advertising could raise similar concerns.
The decisions are subject to appeal to the circuit court within 30 days. We will continue to monitor developments on that front.
If you have any questions, or would like additional information, please contact one of the attorneys on our State & Local Tax team.
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