Maryland appeals ruling that struck down digital advertising tax funding education

Maryland officials are appealing a ruling that struck down the state’s digital advertising gross revenues tax, continuing a years-long legal fight over a tax designed to raise money for public education.

The state has asked Anne Arundel County Circuit Court to review three Maryland Tax Court decisions issued in August in cases involving Apple, Google and Peacock TV. Those decisions found that the tax violated the federal Internet Tax Freedom Act.

The appeal does not automatically restore the tax or overturn the Tax Court decisions.

Instead, the circuit court will review whether the Tax Court made errors of law in reaching its conclusions. No hearing date had been set as of the latest reporting.

Maryland Comptroller Brooke Lierman said she supports the Attorney General’s appeal and disagrees with the Tax Court rulings. She said the law was intended to make large technology companies contribute to state revenues and help fund Maryland public schools.

The tax was enacted in 2021 and applies to certain companies earning revenue from digital advertising.

Under the law, companies with at least $100 million in global annual gross revenue can be subject to a 2.5% tax, with the rate increasing in tiers to a maximum of 10% for companies with at least $15 billion in global revenue.

The revenue was intended to support the Blueprint for Maryland’s Future, the state’s long-term K-12 education funding plan.

Estimates suggested the tax could eventually produce as much as $250 million per year.

Maryland has already collected more than $500 million under the tax, but that money has remained unspent while the legal challenges continue.

The most recent Tax Court rulings represented a major setback for the state.

The court concluded that Maryland’s tax violated the federal Internet Tax Freedom Act because digital advertising was taxed while comparable non-digital advertising — such as newspaper, radio, television and billboard advertising — was not.

In the Peacock case, the Tax Court also found a First Amendment problem, concluding that the law improperly treated digital streaming services differently from other broadcasters.

The digital ad tax has faced repeated court challenges since its adoption.

A federal appeals court previously struck down part of the law on First Amendment grounds, while other litigation has focused on whether the tax discriminates against online commerce.

The latest appeal means the legal fight is far from over.

If the circuit court upholds the Tax Court decisions, the state could potentially pursue additional appeals through Maryland’s appellate courts. If the state ultimately loses, it could also face refund obligations for taxes already collected.

For Maryland’s broader budget picture, the outcome matters because the tax was created as a dedicated revenue source for education at a time when Blueprint costs are projected to place increasing pressure on the state’s general fund.