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Maryland Supreme Court allows country's first ever digital ad tax

Digital Ad Tax
Posted at 11:00 AM, May 10, 2023
and last updated 2023-05-10 15:56:38-04

ANNAPOLIS, Md. — Maryland's Supreme Court is allowing the country's first ever digital ad tax to go into effect.

The law passed during the 2021 General Assembly despite major push back.

It targets big tech companie by imposing a tax on money they generate from selling digital advertising in Maryland.

Under the law the tax rate is 2.5 percent for businesses making more than $100 million in global gross annual revenue; 5 percent for companies making $1 billion or more; 7.5 percent for companies making $5 billion or more and 10 percent for companies making $15 billion or more.

Lawmakers said the tax would generate $250 million in revenue towards K-12 education reform that includes expanded early childhood education, increased teacher salaries, and career readiness.

The law was originally vetoed by then Governor Larry Hogan, only to be overridden by the State Legislature.

Those opposing the legislation sued claiming it violates the 1998 “Internet Freedom Tax Act.”

RELATED: Maryland's tax on digital ads could reshape internet — if it survives legal challenges

A federal district court judge in Maryland dismissed a challenge by the Chamber of Commerce, leading to an ongoing appeal.

Verizon and Comcast also took legal action at the state level.

In October 2022 a Anne Arundel County Circuit Court judge blocked the law, ruling it violates the U.S. Constitution’s prohibition on state interference with interstate commerce.

MORE: Maryland judge strikes down nation’s first digital ad tax

That set off the appeals process, ultimately resulting in the Maryland Supreme Court's decision Tuesday concluding "the Circuit Court for Anne Arundel County lacked jurisdiction over this action because the appellees failed to exhaust their administrative remedies."

The Maryland Chamber of Commerce issued a lengthy statement in response.

"The ruling did not address the substantive arguments or the constitutionality of the case," their statement read in part. "This legislation puts Maryland businesses at a competitive disadvantage by making online advertising more expensive here than in 49 other states and could ultimately result in the loss of business investment and growth in the state."

The Chamber said they plan to further examine the merits and constitutionality of the law.

"This ruling is not the end of our opposition to this legislation, and we remain committed to advocating for policies that promote growth and opportunity for all Maryland businesses."

Maryland Attorney General Anthony Brown, who backed the law, welcomed the court's order.

“The digital ad tax will support our collective goal of transforming schools across the State," said Brown. "It will help level the playing field so that underserved communities will have access to quality educational opportunities enjoyed by our highest performing schools.”