Maryland cannot prohibit companies that pass on the costs of the state's digital advertising tax from telling customers why prices went up, the U.S. Court of Appeals for the Fourth Circuit ruled August 15.
The tax’s pass-through provision prevented businesses subject to the tax from directly passing the levy to customers via a separate fee, surcharge, or line item. The law allows other means of explaining increased prices to account for the tax.
Reversing the lower court, the Fourth Circuit unanimously agreed with the plaintiffs that the pass-through restriction violates the First Amendment free speech rights of affected companies in an attempt to shield Maryland lawmakers from “criticism and political accountability.”
When Maryland passed the nation’s first digital advertising tax in 2021, it hoped to have a large revenue stream for education-related initiatives. Since then, the tax has been challenged on multiple fronts by multiple plaintiffs, including tech giants Apple and Google. Litigation in the Maryland Tax Court challenging the tax on other grounds is pending, and its outcome could affect the tax’s fate.
BDO Insights
- The struggles Maryland has experienced in implementing a digital ad tax have caused uncertainty for the business community, especially with several other states monitoring judicial decisions as they consider imposing their own taxes.
- Taxpayers subject to the Maryland digital ad tax might be able to expect refunds depending on the litigation’s outcome. They should contact their advisors for a full explanation of what effect the recent Fourth Circuit and any future Maryland Tax Court decisions will have on their tax situations.
Please visit BDO’s State & Local Tax Services page for more information on how BDO can help.