Maryland Digital Advertising Tax Struck Down: What Multistate Businesses Should Know

Key Takeaways:

• The Maryland Tax Court struck down Maryland’s Digital Advertising Tax, holding that it violated the Due Process and Commerce Clauses of the Constitution as well as the Federal Internet Tax Freedom Act.
• Maryland’s Tax applied to digital advertising services but not traditional print and radio advertising, and was calculated using a company’s worldwide income, not just the income that was Maryland derived
• States like Illinois, Washington, and Utah that have passed their own taxes on digital advertising may face similar challenges
• A separate Federal case in the Fourth Circuit previously held that the law violated the First Amendment because it restricted businesses’ ability to communicate to consumers what portion of costs was due to the tax

On August 14, 2026, the Maryland Tax Court ruled that the state’s Digital Advertising Gross Revenues Tax violates the Federal Internet Tax Freedom Act (ITFA), as well as the Commerce and Due Process Clauses of the US Constitution. Apple, Google, and Peacock TV brought separate challenges after seeking refunds of digital advertising taxes paid to Maryland. Maryland had collected approximately $535.5 million from the tax through July 2026. In a separate case before the Fourth Circuit, the US Chamber of Commerce and other industry groups also brought a First Amendment challenge to the tax.

What Is Maryland’s Digital Advertising Tax?

Maryland enacted the Digital Advertising Gross Revenues Tax back in 2021. Under the law, businesses with at least $100 million in global annual gross revenue were subject to the tax when they earn $1 million of Maryland derived digital advertising gross revenue. Tax rates ranged from 2.5% to 10% based on global annual gross revenue.

The tax applies to digital advertising, such as banner, search engine, interstitial, and similar advertising delivered through a digital interface. Ads appearing on websites, in search engines, or within mobile applications were generally subject to tax. Traditional television and radio advertising is not subject to the tax. A television commercial, radio spot, print advertisement, or billboard would not be taxable.

Background on the Maryland Digital Advertising Tax Challenge

Apple, Google, and Peacock TV paid Maryland’s digital advertising tax for the tax year 2022. The companies later requested refunds from the Maryland Comptroller, arguing that the tax violated federal law. The Comptroller denied the refund claims, and the companies appealed to the Maryland Tax Court in 2023. The companies argued that the tax discriminated against electronic commerce in violation of ITFA and that its rate structure violated the Commerce and Due Process Clauses.

Under ITFA, states are prohibited from imposing discriminatory taxes on electronic commerce solely on the basis of the transactions being conducted online. The taxpayers compared digital advertising to traditional advertising, arguing that Maryland taxed the digital version of advertising while leaving comparable television, radio, print, and billboard advertising untaxed.

Accordingly, the Maryland Tax Court had to determine whether digital advertising differed enough from traditional advertising to justify different tax treatment that would be allowed under the ITFA. Maryland argued that differences in how digital advertising operates distinguish it from traditional advertising. However, the taxpayers argued that digital advertising and print advertising are both advertising services and there is no difference between them.

Why the Maryland Tax Court Struck Down the Digital Advertising Tax

The Tax Court sided with the taxpayers, holding that advertising through a digital interface did not make the service different from print advertising for ITFA purposes.

The Tax Court also held that Maryland’s method of calculating the rate for the digital advertising tax violated the Commerce Clause and Due Process Clause. Under the law, Maryland taxed digital advertising revenue attributable to the state but used a taxpayer’s worldwide revenue to determine the rate, which can range from 2.5% to 10%.

The Tax Court found that the structure could cause revenue earned outside of Maryland to increase the tax on Maryland activity, violating the Commerce Clause. The opinion also held that the rate was not proportional to the taxpayer’s economic activity in Maryland and that the thresholds favored in-state businesses over larger interstate businesses, which violates both the Commerce Clause and Due Process Clause.

The Tax Court ordered refunds to Apple, Google, and Peacock TV. The Maryland Comptroller has 30 days to appeal the ruling to a Maryland circuit court. If the Maryland Comptroller appeals the ruling, the refund payments will be stayed, and further judicial review may be expected.

How a Separate First Amendment Challenge Affected Maryland’s Digital Advertising Tax

Separate from the Maryland Tax Court case, the US Chamber of Commerce and other industry groups brought a First Amendment challenge to the digital advertising tax that reached the US Court of Appeals for the Fourth Circuit.

Maryland allowed businesses to recover the cost of the tax by raising their prices, but prohibited them from directly passing it through as a separate fee or line item. This meant that a business was allowed to increase the total price to cover the tax, but could not separately state the amount attributable to Maryland’s tax on the customer’s bill. The challengers raised a First Amendment issue, stating that this was effectively a restriction on what a business could tell its customers about the charge. The Fourth Circuit concluded that the state could not prohibit businesses from communicating the tax to customers in that manner.

What the Maryland Ruling Means for Digital Advertising Taxes in Other States

Maryland is not alone in taxing digital advertising. Illinois, Utah, and Washington have all adopted their own taxes on digital activity, with more states proposing similar taxes. While states can develop new taxes on digital activity and commerce, the Maryland decision shows that those taxes are subject to federal limits.

Illinois’ Targeted Advertising Services Tax

Beginning January 1, 2027, Illinois will impose a 10% tax on gross receipts from targeted advertising services provided in the state. Illinois looks to the consumer’s location to determine whether an advertisement occurs in Illinois. The state can use an Illinois address or an IP address to establish that location. For example, an advertisement selected for an Illinois consumer based on browsing history or other personal data may be taxable.

Unlike Maryland, Illinois does not use worldwide revenue to determine the tax rate. It applies a flat 10% rate to targeted advertising receipts from Illinois regardless of the taxpayer’s worldwide revenue. However, Illinois could face a similar ITFA claim because the state taxes targeted digital advertising but does not impose the tax on traditional advertising, such as print, television, and radio ads.

Washington State’s Advertising Services Retail Sales Tax

Washington extended its retail sales tax to advertising services starting on October 1, 2025. The tax covers digital and nondigital services used to create, place, and distribute advertisements. The retail sales tax on advertising now includes online referrals, search engine marketing, web campaign planning, and purchases of advertising space on the internet. For example, a business may pay sales tax when it hires an agency to plan and place an online advertising campaign. In contrast, television, radio, newspaper, print, and out-of-home advertising would generally not be taxable. Washington already faces a similar ITFA challenge over those differences, and the challenge remains pending.

Utah’s Targeted Advertising Tax

Utah will also impose a tax on targeted advertising beginning January 1, 2027. The tax calculation starts with a business’s worldwide receipts from targeted advertising. Utah then uses the share of advertising impressions delivered to people in the state to determine the Utah portion of receipts. Maryland uses worldwide revenue to set the tax rate, while Utah uses worldwide targeted advertising receipts to calculate the tax. Because both calculations rely on activity outside the state, Utah could face a similar question about how much out-of-state activity can affect the tax due.

Whether states restrict how a digital advertising tax can be presented to customers could also give rise to legal challenges. The Fourth Circuit ruled against Maryland for restricting businesses from communicating the cost of the tax to consumers. Another state restricting what a business can tell customers about the charge could also raise a First Amendment question in that state.

What Multistate Businesses Should Do After the Maryland Digital Advertising Tax Ruling

Multistate businesses subject to digital advertising taxes should review their exposure in states with similar laws, assess current filing positions, and evaluate whether the Maryland ruling creates opportunities for refund claims or other tax planning considerations.

Multistate businesses subject to digital advertising taxes should review how the states in which they file tax digital advertising and evaluate their current filing positions and any potential Maryland refund claims.

Our State and Local Tax Team is experienced in reviewing these types of claims. If you think these decisions may impact you, contact a member of our team to discuss how we can assist you.