Maryland Supreme Court Urged To Strike Down Digital Ad Tax

Comcast and Verizon on Friday urged Maryland's highest court to strike down a 2021 law that imposes a tax on some digital ads, arguing both that the statute violates the constitution, and that it conflicts with a 1998 federal law.

“This is a very unconstitutional tax,” Jeffrey Friedman told judges on Maryland's Supreme Court during an hour-long hearing.

“I've never seen a tax like this anywhere,” he added. “This is the first tax in the United States to specifically and solely target internet commerce.”

Friday's hearing centered on a 2021 Maryland law that imposes taxes on some online companies with more than $100 million in digital ad revenue. Rates vary from 2.5% to 10% of revenue attributable to Maryland, with the percentage tied to global revenue.

The bill, aimed at large tech companies including Google and Facebook, was enacted over the veto of former Governor Larry Hogan. After lawmakers overrode the veto, they amended the bill to add a provision exempting “news media entities” that sell digital ads from the tax.

The measure defines news media entities as entities “engaged primarily in the business of newsgathering, reporting, or publishing articles or commentary about news, current events, culture, or other matters of public interest.”

Comcast and Verizon challenged that law in state court. (The Chamber of Commerce and other organizations separately challenged the law in federal court.)

Last October, Anne Arundel County Circuit Judge Alison Asti invalidated the law.

Maryland tax officials then appealed to the state Supreme Court, contending that Comcast and Verizon shouldn't have been able to proceed in front of Asti without first bringing a case to an administrative law judge who handles tax matters.

Verizon and Comcast countered that they were entitled to go directly to Anne Arundel county court, given that they were raising a constitutional challenge to the law.

On Friday, Friedman specifically argued that the law flouts a constitutional principle that prohibits states from regulating interstate commerce.

He additionally said the provisions exempting news agencies posed particular First Amendment problems -- arguing that the exemption could result in the government deciding what companies should be considered “news media entities.”

“What is the comptroller going to do? Set up a desk within the comptroller's office, a news media desk, where you can present your content to the comptroller and the comptroller can decide whether you're news?” he said.

Friedman also argued that the tax law was overriden by the federal Internet Tax Freedom Act -- a 1998 measure that prohibits states from singling out online services for taxes.

Ad groups including the Association of National Advertisers, American Advertising Federation, Interactive Advertising Bureau and American Association of Advertising Agencies urged the Maryland Supreme Court to strike down the law.

The groups argued in a friend-of-the-court brief that the statute wrongly treats digital ads differently than non-digital ads.

“Advertising is advertising, no matter in which media it occurs," the groups wrote.

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