Maryland Court Strikes Down State's First-in-Nation Digital Ad Tax, Orders Refunds

ANNAPOLIS, Md. – The Maryland Tax Court on Friday, August 14, 2026, struck down the state's pioneering tax on digital advertising, ruling it unlawful and unconstitutional. The decision orders state officials to refund the approximately $535 million already collected from major technology companies since the tax went into effect in January 2022.

The landmark ruling, stemming from challenges brought by tech giants Apple, Google, and Peacock TV, found that the Digital Advertising Gross Revenues Tax violates multiple federal and constitutional provisions. Specifically, the court determined the tax conflicts with the federal Internet Tax Freedom Act (ITFA), which prohibits states from imposing discriminatory taxes on electronic commerce. It also found the tax unconstitutional under the First Amendment, the dormant Commerce Clause, and the Due Process Clause of the U.S. Constitution, citing its discriminatory design against digital services and speakers.

Approved in 2020 and enacted in 2021 over a gubernatorial veto, Maryland’s digital ad tax was the first of its kind in the nation. It was designed to generate hundreds of millions of dollars annually to fund the state’s ambitious public school improvement program, known as the Blueprint for Maryland’s Future. The tax targeted large tech companies with global revenues exceeding $100 million and at least $1 million in ad revenue from Marylanders. Rates ranged from 2.5% to 10%, escalating with a company's global revenue, reaching the maximum for those with over $15 billion.

While the tax was aimed at “Big Tech,” the implications of such novel tax structures often ripple through the broader business landscape, creating an environment of uncertainty that even small and mid-sized companies must monitor. We've observed that states, in their pursuit of new revenue streams, sometimes overlook the intricate legal frameworks that govern interstate commerce and digital activities. The Maryland court's decision underscores the critical importance of adhering to established federal laws and constitutional principles when designing tax legislation. For businesses, navigating these complex and evolving tax regulations requires diligent attention to detail, a core component of our tax preparation and compliance services. C&S Finance Group LLC helps clients understand and adapt to such significant legal and financial shifts, and we encourage any business with concerns about state tax liabilities to reach out to us at csfinancegroup.com.

From its inception, the digital ad tax faced continuous legal challenges. Prior to this Tax Court decision, a federal appeals court had already struck down parts of the law, including provisions that restricted companies from disclosing the cost of the tax to their customers. Additionally, an earlier challenge in state courts led to a Supreme Court of Maryland ruling that directed the tech companies to exhaust their administrative appeals, thereby sending the case to the Maryland Tax Court for this definitive ruling.

The Maryland Tax Court's finding that the tax did not differentiate between online advertising and other forms of advertising, yet imposed different tax rules, was central to its conclusion regarding the ITFA violation. This highlights a key principle of the 1998 federal legislation: governments cannot tax internet commerce differently from similar goods or services that are not online. The separate challenge brought by Peacock TV further reinforced the First Amendment violation, as the court held that the tax discriminated against certain broadcasters.

This ruling carries significant weight beyond Maryland's borders, as other states have been closely watching the legal fate of this pioneering tax. The decision could deter other jurisdictions from implementing similar digital advertising taxes, or at least prompt them to design any such future taxes with greater attention to federal and constitutional precedents. For the state of Maryland, the decision creates a substantial budgetary shortfall for the Blueprint for Maryland's Future, which had relied on these funds.

The ordered refunds, which include interest, will now present a logistical and financial challenge for the state. The initial estimate of $250 million in annual revenue from the tax was significantly higher than the $535 million collected over nearly two years, indicating the tax faced collection difficulties or generated less revenue than anticipated. This gap between projection and reality further complicates the state's financial planning.

Looking ahead, the Maryland Attorney General's office may appeal the Tax Court's decision, potentially prolonging the legal battle. Regardless of future appeals, this ruling establishes a critical precedent for the taxation of the digital economy, emphasizing the enduring power of federal law and constitutional protections against discriminatory state taxation. Businesses and policymakers nationwide will continue to monitor how states balance their revenue needs with the imperative to foster a fair and constitutionally compliant economic environment.