• by Wendy Davis , 4 hours ago

The Maryland Tax Court on Friday struck down a 2021 law that imposed taxes on digital ad sales and ordered the state to provide refunds to Google, Peacock and Apple, which challenged the statute.

The first-of-its-kind state law imposed taxes on some online companies with more than $100 million in digital ad revenue.

Rates varied from 2.5% to 10% of revenue attributable to Maryland, with the percentage tied to global revenue. For instance, companies earning between $100 million and $1 billion in digital ad revenue globally were taxed at the 2.5% rate, while those that take on more than $15 billion were assessed at the 10% rate.

The measure, which was enacted over the veto of former Governor Larry Hogan, exempts “news media entities” and "broadcast entities" that sell digital ads.

The tax court invalidated the statute for several reasons, including that it conflicts with the Internet Tax Freedom Act -- a 1998 law that prohibits states from imposing a tax on digital services unless taxes are imposed on "similar" non-digital services.

"Congress could not have been any clearer that it did not want internet services of any kind taxed unless other similar services in the broader sense were taxed," the tax court, a state administrative agency, wrote.

"Using a common-sense approach to define and distinguish digital advertising services from non-digital, the Court finds that currently, in the advertising industry, in academia, and in Maryland households, the provision of digital advertising services is indistinguishable from the provision of non-digital advertising services," the opinion continues.

The tax court also found that the law's exemption for news media and broadcast entities violated the First Amendment -- partly due to the way the statute defined news media and broadcast entities.

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," and "broadcast entities" as entities "primarily engaged in the business of operating a broadcast television or radio station.”

The tax court wrote that the exemption "has the effect of suppressing speech that does not fit within the definitions of 'broadcast entity' or 'news media entity.'

"To protect its exemption, a publication would be wise not to drift into the territory of an 'aggregator or republisher of third-party content' which are not exempt," the opinion states.

The court added that determining a publication's "primary" purpose "invites discrimination on the basis of the content of the speech."

Maryland Comptroller Brooke Lierman stated Friday that she "strongly" disagrees with the decision, and indicated she will attempt to appeal.

"I will continue to work with the Attorney General of Maryland in defending this important law, which aligns Maryland's tax code with the reality of today's economy, ensures that the country's biggest tech companies pay their fair share, and provides essential support to Maryland's public school systems," she stated.

The Association of National Advertisers, which opposed the Maryland law, cheered Friday's decision.

"The ANA is heartened by the court's determination that digital ad taxes of this kind are unconstitutional and in clear violation of the federal Internet Tax Freedom Act," Executive Vice President Chris Oswald stated Friday. "Hopefully this decision will send a strong signal to other states not to waste their time, money, and credibility on digital ad tax gambits built on the same legal house of cards." 

Washington state recently enacted a law that imposes a tax on online advertising services such as creating and placing digital ads, analyzing their performance and planning online campaigns.

Comcast sued last year to invalidate that law, arguing that it violates the Internet Tax Freedom Act. It's not yet clear whether Washington courts will reach the same conclusion as the Maryland Tax Court.