This week, the Supreme Court of Maryland issued a brief order1 overturning the lower court’s decision that the Maryland Digital Advertising Gross Revenues Tax is unconstitutional.
Maryland was the first state to introduce a tax on digital advertising in 2020 as a plan to use the proceeds to improve public schools. The tax was seen as a punitive tax on big firms and was vetoed by then-governor Larry Hogan, only to be overturned by the Democratic General Assembly in 2021. The tax would only be levied on companies making at least $100 million per year globally from digital ads. Verizon and Comcast immediately challenged the law in Anne Arundel County, where the judge agreed with the businesses that the law was unconstitutional for various reasons, including that it violated the Supremacy Clause, the Dormant Commerce Clause, and the First Amendment of the U.S. Constitution, as well as the Internet Tax Freedom Act. Upon appeal to the Supreme Court, the decision favored the state but no rationale was stated. As the decision was not unanimous, the opinion may disclose the dissenting rationale as well when it is issued.
The order stated that the Anne Arundel County Circuit Court lacked jurisdiction because the companies did not exhaust their administrative appeal options. The trial court was told to dismiss the case because the companies did not challenge a specific assessment of tax in tax court. It is possible that the companies may file another challenge once an assessment is issued by the state. The U.S. Chamber of Commerce has a challenge pending in the U.S. Court of Appeals for the Fourth Circuit that is not yet set for arguments.
In light of this decision, a spokesman for the Maryland Comptroller’s office commented that taxpayers that did not submit the tax while the case was being litigated “should file their return and remit their tax payment as soon as possible.” With the additional pending challenges, however, it is possible that this is not the final word on the validity of this tax.
We will keep you updated as the challenges to this tax progress through the judicial system.
1 Comptroller v. Comcast of California, Maryland, Pennsylvania, Virginia, West Virginia LLC, MD No. SCM-REG-0032-2022, 5/9/23.
TECHNICAL INFORMATION CONTACTS:
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at firstname.lastname@example.org.