• by Wendy Davis , 4 hours ago

Maryland late last week appealed an agency ruling that struck down a 2021 law imposing taxes on digital ad sales.

The Maryland Tax Court, a state administrative agency, said in its ruling that the tax law is invalid 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 agency wrote.

That ruling came in response to a challenge to the tax law by Google, Peacock and Apple. The tax court directed the state to issue refunds to those companies.

State Comptroller Brooke Lierman praised the attorney general's decision to file an appeal.

"I remain hopeful that, upon review, Maryland courts will find this law constitutional," she stated Monday. "The General Assembly enacted this law to align with the realities of today's economy, to ensure that the biggest tech companies doing business in Maryland pay their fair share and to provide essential support to Maryland's public schools."

The state has not yet made substantive arguments to the Anne Arundel County Circuit Court, which will hear the appeal.

The first-of-its-kind Maryland 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 agency also said in last month's ruling that the exemption for news media and broadcast entities violated the First Amendment -- partly due to the statute's definitions.

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.”

That wording "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.

Outside business groups, including the Association of National Advertisers, American Association of Advertising Agencies, Interactive Advertising Bureau, Motion Picture Association – America, National Association of Broadcasters, NCTA -- The Internet & Television Association, Network Advertising Initiative and News Media Alliance opposed the 2021 law.

Illinois recently passed a similar law that taxes providers of targeted advertising. The tech industry group NetChoice late last week filed a lawsuit challenging that measure.