Maryland invalidates digital ads tax: Key takeaways

The Maryland Tax Court recently issued three coordinated decisions striking down Maryland’s Digital Advertising Gross Revenues Tax (the Tax).

On August 14, 2026, the Court sided with the taxpayers in Apple Inc. v. Comptroller of Maryland, Google LLC v. Comptroller of Maryland, and Peacock TV LLC v. Comptroller of Maryland, holding that the Tax violates the Internet Tax Freedom Act (ITFA) and the United States Constitution. The Court also reversed the Comptroller’s denial of refund claims and ordered refunds with interest.

In this alert, we provide key takeaways and considerations for companies in light of the decisions.

Background

In 2021, Maryland became the first state to enact a tax specifically targeting revenue from digital advertising services (MD. CODE ANN., TAX-GEN. §§ 7.5-101–7.5-301). The Tax applies to businesses with more than $100 million in global annual gross revenues that derive at least $1 million in annual gross revenues from digital advertising services in Maryland. Rates are graduated from 2.5 percent (for companies with $100 million in global revenue) to 10 percent (for those exceeding $15 billion).

At the same time, ITFA prohibits state and local governments from imposing “discriminatory taxes on electronic commerce.” In other words, the state is prohibited from levying taxes on electronic commerce that are not generally imposed on transactions involving similar services delivered through other means. ITFA thus bars any state tax that singles out digital transactions while leaving analogous non-digital transactions untaxed.

Despite slightly different arguments from the plaintiffs in each case, the Court’s opinions consolidate around unified key themes.

ITFA violations

The Court ruled that the Tax violates the ITFA for being impermissibly discriminatory. The Tax is imposed by its plain language on digital advertising (e.g., online banner ads), while it is not imposed on similar advertising that is not digital (e.g., physical billboards).

The Court equated this to an impermissible tax on electronic commerce that is not generally imposed on transactions involving similar services in direct violation of the ITFA. Because federal law in these cases preempts a tax enacted at the state level, the Court held the Tax invalid.

Constitutional infirmities

The Court held that the Tax violates the US Constitution at the following points:

• Dormant Commerce Clause: The Court found that the graduated rate structure tied to global revenues creates clear external inconsistency and effectively taxes activity beyond Maryland’s borders.
  
  
• Due Process Clause: The Court’s Due Process analysis was largely derivative of the Commerce Clause analysis, finding that the rational relationship test is not met and the Tax is discriminatory.
  
  
• First Amendment: The Court held that content-based exemptions for “broadcast entity” and “news media entity” invite discrimination based on the content of speech, and undefined terms “news” and “primarily” made the statute impermissibly vague.

Next steps

The state can, and almost certainly will, appeal these decisions. Appeals from a final decision of the Court go to the state circuit court and must be filed within 30 days of a decision (September 14, 2026 under the relevant computation rule). Generally, a decision remains enforceable during appeal. However, given the nature of these disputes and the potential budgetary impact, the state may win a stay of the decisions.

On appeal, the circuit court would review the Court’s findings of fact and conclusions of law but would not admit new evidence on the merits. If the circuit court believed that more evidence would be useful, it could order the Court to take additional evidence.

The circuit court has authority to affirm the decisions, to remand the cases back down to the Court, or to reverse or modify the decisions. Following appeals to the circuit court, parties may make additional appeals to the state appellate courts.

Key takeaways and considerations

Companies are encouraged to evaluate the impact that the decisions, and their potential future appeal, may have on their businesses.

Notably, companies with revenue in Illinois and Utah, where similar taxes are set to take effect on January 1, 2027, should consider how to prepare for potential challenges arising from the Maryland decisions.

As the Maryland Tax continues to work its way through the legal system, the validity of the Illinois and Utah taxes could remain uncertain for quite some time.

Potential considerations include:

• Companies that have paid the Tax are encouraged to evaluate whether to file refund claims if they have not done so already.
  
  
• Companies currently collecting or remitting the Tax are encouraged to consult counsel regarding continued compliance obligations pending appeal.
  
  
• As the ruling may have broader implications for similar digital services taxes proposed or enacted in other jurisdictions, companies may wish to take a fresh look at their approaches to all digital advertising taxes.

For more information, please contact the authors.