The Maryland Tax Court on Friday struck down the state’s digital advertising gross revenues tax, concluding the levy runs afoul of the federal Internet Tax Freedom Act and ordering the state to return amounts collected plus interest. The decision resolved challenges brought by major companies, including Apple, Google and Peacock TV, and marks the latest judicial setback for a law that has faced persistent litigation since its 2021 enactment.
Ruling, refunds and revenue at stake
The court's judgment directly affects a revenue stream the state had been using to help offset costs for the Blueprint for Maryland’s Future education program. Comptroller officials said they were reviewing the ruling; the Tax Court directed that the taxes gathered under the statute be refunded along with interest.
According to a prior report from the Comptroller’s office, more than $400 million had been collected under the tax. Legislative analysis projected the levy could generate as much as $250 million annually when fully implemented.
Who the law targeted and how it worked
The 2021 law was designed to target large digital advertising companies. Under its structure:
- Companies with global annual gross revenue of at least $100 million were subject to the tax.
- The levy began at 2.5% and increased in 2.5 percentage-point increments.
- The tax capped at 10% for companies reporting more than $15 billion in gross global revenue.
| Revenue threshold | Tax rate |
|---|---|
| $100 million – base threshold | 2.5% |
| More than $15 billion | 10% (maximum) |
Legal background and related rulings
The statute has been the subject of multiple state and federal court challenges. Last year, a federal appeals court struck down portions of the law on First Amendment grounds, narrowing the state's authority to impose the levy. This latest Tax Court decision adds a separate statutory conflict, finding the tax incompatible with federal restrictions on certain Internet-related taxes.
Litigation against the tax was brought by a range of companies; the Tax Court’s decision addressed three specific challenges filed by Apple, Google and the streaming service Peacock TV.
Political reaction and the education funding gap
State legislative leadership criticized the ruling. Senate President Bill Ferguson and House Speaker Joseline Peña-Melnyk, both Democrats, released a joint statement opposing the decision and defending the legislature’s action to modernize the tax code.
"The General Assembly enacted the Digital Advertising Gross Revenues Tax because Maryland’s tax system should keep pace with a changing economy," the leaders said. "As more commerce and advertising moved online, it was appropriate to modernize our tax code so that large digital advertising companies contributed alongside other businesses operating in our state."
The tax proceeds had been earmarked to help cover the rising costs of the Blueprint for Maryland’s Future, a sweeping education reform program whose later phases are expected to drive billions in projected budget shortfalls. State budget projections have cited the program as a central contributor to an approaching structural gap; estimates indicate the state will need to confront a projected shortfall of more than $3 billion next year as more costly elements of the plan take effect.
Practical implications and next steps
Comptroller’s office officials said they were reviewing the Tax Court ruling. The decision obligates the state to refund taxes collected under the statute plus interest, but the timeline and mechanism for refunds have not been detailed publicly. It is unclear whether the state will appeal the Tax Court’s decision to a higher court, or how the administration will address the near-term funding gap for education if refunds are required.
Advocates for technology industry positions have argued against the tax in filings and public statements, while state officials and legislative leaders defended it as an update to Maryland’s tax code reflecting where advertising revenue now flows.
The ruling raises immediate questions for state budget planners and lawmakers weighing options to close the looming structural deficit without the digital ad levy as a revenue source. Any change to the law or an appeal that reverses the decision would alter that calculus.
As officials determine whether to pursue an appeal and how to implement refunds, Marylanders will be watching how policymakers replace or restructure the revenue originally intended to back education spending.
