Report from MediaPost
In Brief – In a major ruling in a tax law battle stretching more than five years, the Maryland Tax Court has struck down the state’s 2021 law imposing taxes on the digital advertising revenue of large online platforms and ordered the state to issue refunds to the companies. Maryland imposed a tax of 2.5% to 10% on the in-state digital ads revenue of companies with more than $100 million in global revenue, with the rate escalating based on worldwide earnings. The court ruled that the law violated the federal Permanent Internet Tax Freedom Act (PITFA), which bars states from taxing digital services unless similar non-digital services are equally taxed. It also found the law’s exemption for traditional news and broadcast entities violated the First Amendment because its definitions could discriminate based on the content and purpose of speech. Maryland’s Comptroller said she plans to pursue an appeal while opponents said that they warned from early on that state digital taxes clearly violate federal law.
Context – The Maryland digital advertising tax was the first US state effort to replicate the foreign “digital services taxes” (DSTs) targeting digital giants like Google, Meta, and Amazon. Foreign DSTs, which first emerged in Europe in 2020, have been strongly opposed by President Trump and continue to be an issue in ongoing trade battles. Maryland was quickly sued by technology and business trade groups after enacting its digital tax because it seems to clearly violate PITFA by not taxing offline advertising, such as on television, radio, billboards and print mailings, in the same manner as online advertising. Federal and state judges both soon ruled that way, but a morass of venue and jurisdiction battles related to state tax law litigation tied up the case for years. States including Washington, New York, California, Rhode Island, Minnesota and Utah have since pursued their own types of digital taxes, and backers of state efforts are calling for a coordinated multi-state campaign to circumvent PITFA in the manner that the states eventually overcame limits on state sales taxes for online commerce.