On August 14, 2026, the Maryland Tax Court issued three significant decisions that invalidated Maryland’s Digital Advertising Gross Revenues Tax, holding that the tax violates both federal law and multiple provisions of the U.S. Constitution. The decisions represent a major victory for taxpayers and may have implications beyond Maryland as other states continue exploring ways to tax digital business models.
Background on Maryland’s Digital Advertising Gross Revenues Tax
Maryland made national headlines in 2021 when it became the first state to enact a tax specifically targeting digital advertising revenues. The law imposed a tax ranging from 2.5% to 10% on gross revenues derived from digital advertising services earned in Maryland by businesses with at least $100 million of global annual revenue and at least $1 million of Maryland digital advertising revenue.
The tax primarily targeted large technology, media, and online advertising companies and immediately triggered constitutional and federal law challenges from taxpayers. After several years of litigation and procedural disputes, the Maryland Tax Court addressed the merits of the law in cases involving Apple, Google, and Peacock TV.
Why the Court Invalidated the Digital Advertising Tax
1. Violation of the Internet Tax Freedom Act
The court’s most significant holding centered on the federal Internet Tax Freedom Act. The statute prohibits states from imposing discriminatory taxes on electronic commerce. The court concluded that Maryland taxed digital advertising services while leaving similar non-digital advertising services untaxed, including traditional advertising formats such as billboards, television, radio, print, and direct mail advertising.
The court found that digital and traditional advertising are sufficiently similar services and that Maryland’s tax therefore discriminated against electronic commerce in violation of federal law. Because federal law preempts conflicting state law, the tax could not stand.
2. Dormant Commerce Clause Concerns
The court also determined that the tax violated the Dormant Commerce Clause. A key issue was Maryland’s decision to base tax rates on a taxpayer’s worldwide revenue rather than solely on Maryland activity. Under the statute, a company’s Maryland tax burden increased as its global revenue increased, even when the additional revenue was generated outside Maryland. The court concluded that this structure improperly reached beyond Maryland’s borders and failed constitutional apportionment principles.
3. Due Process Issues
The court further held that the tax violated the Due Process Clause because the rate structure effectively connected a taxpayer’s Maryland tax liability to business activities occurring outside the state.
4. Additional Constitutional Challenges
In the Peacock TV case, the court also found issues relating to exemptions provided to certain broadcast and news media entities. The differential treatment raised additional constitutional concerns under free-speech principles.
Refund Opportunities
The Maryland Tax Court ordered refunds, with interest, to the taxpayers that challenged the assessments. The court reversed the Comptroller’s denial of refund claims and directed that taxes previously paid be returned.
Although appeals may follow, companies that paid Maryland’s digital advertising tax should promptly evaluate refund preservation opportunities and review applicable statutes of limitation. Preserving refund rights may be important while the litigation continues.
Broader Implications for State Tax Policy
The significance of these decisions extends beyond Maryland. States continue searching for revenue sources tied to digital commerce, online platforms, advertising technology, data monetization, streaming services, and artificial intelligence. Maryland’s law was widely viewed as a testing ground for state efforts to tax digital business models.
The court’s analysis provides taxpayers with a framework for evaluating taxes that:
- Specifically target digital activities while exempting similar non-digital activities.
- Use worldwide revenue thresholds to determine state tax rates.
- Create discrimination concerns under the Internet Tax Freedom Act.
- Raise constitutional apportionment concerns by taxing value generated outside the taxing state.
For policymakers, the rulings reinforce a difficult reality: states cannot simply repackage traditional tax concepts to reach modern digital business models without carefully navigating federal preemption and constitutional limitations.
What Businesses Should Do Now
- Review historical Maryland digital advertising tax payments.
- Evaluate potential refund claim opportunities and filing deadlines.
- Monitor appeals and subsequent court activity.
- Assess whether similar tax regimes in other jurisdictions may be vulnerable to challenge.
- Reevaluate financial statement reserves or uncertain tax positions associated with the Maryland tax.
Final Thoughts
Maryland’s Digital Advertising Gross Revenues Tax was one of the most closely watched state tax experiments of the past decade. The Maryland Tax Court’s decisions represent a substantial setback for states seeking to create targeted taxes on the digital economy and may influence future legislative efforts across the country.
While the litigation may not be over, taxpayers now have significant authority supporting the position that taxes targeting digital commerce must satisfy both federal protections under the Internet Tax Freedom Act and long-standing constitutional limitations on state taxation.
If you have any questions or are interested in learning more, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
