Maryland: Q1 Estimated Payments Due April 15 for Controversial Digital Ad Tax

April 2022

BY

Angie AcostaPartner, State & Local Tax

Eric FaderManaging Director, State & Local Tax

Jeff SaltzbergManaging Director, State & Local Taxes

The first quarterly estimated payment for the nation’s inaugural digital advertising services tax is due April 15, 2022, to the Maryland state government. The new tax imposes an annual levy on gross revenues earned on digital advertising services attributable to Maryland. Certain entities, like “broadcast entities” and “news media outlets” are exempt from the tax.
 
Digital advertising services are statutorily defined as “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” A “digital interface” is “any type of software, including a website, part of a website, or application that a user is able to access.”
 
Companies with annual gross revenues derived from digital advertising services in Maryland of at least $1 million in a calendar year are required to file a return. However, the tax rate is based on global annual gross revenues, ranging from 2.5% to 10.0%, in 2.5% increments. The 2.5% rate applies to taxpayers with annual gross global revenues of $100 million to $1 billion; the 10.0% rate applies to annual gross revenues exceeding $15 billion.
 
Whether a company’s digital advertising services revenues should be sourced to Maryland is determined by multiplying the company’s total digital advertising services revenue by a single-factor fraction, with annual gross revenues from digital advertising services in Maryland as the numerator, and annual gross revenues from digital advertising services in the U.S. in the denominator (however, the regulations say to use worldwide annual gross digital advertising services revenues). Digital advertising services are sourced based on the location of the device accessing such advertising services. If the device location is unknown, Maryland’s regulations set forth a “throw-out rule” to remove that revenue from the numerator and denominator of the fraction.
 
Companies that reasonably expect their Maryland gross revenues attributable to digital advertising services to exceed $1 million for the calendar year must make 25% quarterly estimated payments, the first of which is due April 15, 2022. For estimated payments due in 2022, the total estimated tax payments for the year must be at least 90% of the tax developed for the current calendar year to avoid interest and/or penalty. If the amount of estimated tax due exceeds $10,000, taxpayers are required to make their payments electronically by ACH.
 
BDO SALT professionals can help Maryland taxpayers navigate the new tax and filing and payment requirements. For more information, contact BDO.