Tuesday, October 18, 2022

State Court Strikes Down Maryland's Digital Ad Tax

On Monday, a Maryland judge held the nation's first – and, to date, only – digital ad tax, H.B. 732, to be both unconstitutional and inconsistent with federal legislation. The Free State statute, which became law only after a General Assembly override of Governor Larry Hogan's veto, imposed a sliding-scale levy on certain providers of digital advertising – but not on all, and not on traditional advertisers – that required large digital platforms (such as Google and Facebook) to remit up to 10 percent of annual gross revenues derived from "digital advertising services."

As Free State Foundation President Randolph May and I explained in "Maryland's Proposed Digital Advertising Tax Would Do Harm," a March 2020 blog post, H.B. 732 not only was vulnerable to legal challenges under the Permanent Internet Tax Freedom Act, the First Amendment, and the Commerce Clause, it also imposed higher prices on local businesses that depend on online advertising to reach their customers and, by direct extension, consumers themselves.

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A group of impacted Comcast subsidiaries and Verizon Media (now Yahoo) sought judicial relief in the form of a Declaratory Judgment in April 2021. Yesterday, Judge Alison L. Asti of the Anne Arundel County Circuit Court, ruling from the bench, granted their Motion for Summary Judgment.

As expected, Judge Asti reportedly found that H.B. 732 impermissibly interferes with interstate commerce, thereby implicating the Commerce Clause; runs afoul of the Permanent Internet Tax Freedom Act's prohibition on discriminatory taxes; and, because it is "not viewpoint neutral," violates the First Amendment.

Comcast and Verizon Media are not the only ones to have challenged Maryland's digital ad tax in court. As I noted in a contemporaneous post to the FSF Blog, a group of trade associations filed a Complaint for Injunctive and Declaratory Relief with the U.S. District Court of Maryland Northern Division on February 18, 2021. Oral arguments on the parties' motions for summary judgment are scheduled to take place at the end of next month.