Maryland Overrides Digital Ad Tax, Paving Way for Challenges to Other States’ Regimes

Article alarm

  • Maryland Tax Court rejected Maryland’s digital advertising tax, finding violations of the Internet Tax Freedom Act and U.S. Constitution.
  • The court found problematic Maryland’s tiered digital ad tax rate based on global annual gross revenues rather than in-state activity, as well as the tax’s application to digital, but not traditional, ads.
  • Unless the decision is overturned, companies that paid Maryland digital advertising tax might be entitled to refunds with interest, and the decision could affect other state digital tax regimes.
These Key Takeaways were generated by AI and reviewed by a BDO professional.

The Maryland Tax Court has struck down the state’s digital advertising tax and ordered the state to refund with interest any taxes paid (Apple Inc. v. Comptroller, No. 23-DA-00-0456 (2026)). The court found that the tax violated both the Internet Tax Freedom Act and U.S. Constitution.

Maryland was the first state to implement a digital advertising tax, which applied to companies with annual gross revenue of at least $100 million worldwide and at least $1 million from digital advertising services within Maryland. The tax applied to tax years beginning after December 31, 2020. (See our prior Alert: Maryland: First State to Implement Digital Advertising Gross Revenues Tax.)

The tiered rate system imposed tax on Maryland digital ad revenue based on global annual gross revenues:

  • 2.5% of the assessable base for companies with global annual gross revenues of $100 million to $1 billion;
  • 5% of the assessable base for companies with global annual gross revenues greater than $1 billion to $5 billion;
  • 7.5% of the assessable base for companies with global annual gross revenues greater than $5 billion to $15 billion; and
  • 10% of the assessable base for companies with global annual gross revenues greater than $15 billion.

That system was one of the tax’s main downfalls. The Maryland Tax Court agreed with the taxpayers that by basing the tax rate on global earnings rather than on the level of in-state activity, Maryland was violating the Dormant Commerce and Due Process clauses and unconstitutionally punishing out-of-state business growth.

The court also found that because digital and non-digital ads are similar, taxing digital ads but not traditional ones is illegal discrimination on electronic commerce in violation of the Internet Tax Freedom Act. 

BDO Insights

  • The Maryland Tax Court's rejection of the state’s digital ad tax, the first such tax in the U.S., could have significant implications for states that have passed digital taxes or are considering them. 
  • The state will almost definitely appeal the decision. However, until  the decision is overturned, companies that paid digital taxes in Maryland are entitled to tax refunds and related interest. Based on the tiered rate system, some claims could be worth millions of dollars. 

Please visit BDO’s State & Local Tax Services page for more information on how BDO can help.