Last week, the Maryland Tax Court struck down the state’s controversial 2020 digital advertising tax on grounds that it violates the Constitution and the federal Internet Tax Freedom Act (ITFA). The ruling on the first-of-its-kind law drew national attention as tech companies, advertisers, and other statehouses watched to see what it might mean for digital product taxes nationwide.
While mounting legal defeats signal trouble for various states’ attempts at digital ad taxes, it's likely states will keep looking for ways to tax and regulate tech. The impetus stems from two key drivers in our current political environment – governments’ persistent urge to tax their way out of their over-spending habits and a growing public antipathy towards large technology companies.
The tax, passed in 2020, applied to companies that sell digital advertising in Maryland, with progressive tax rates from 2.5% to 10% based on company revenue. The Maryland Tax Court ruled on August 14 in favor of challenges filed by Apple, Google, and streaming service Peacock TV. The court – an administrative quasi-judicial agency whose decisions are binding – also ordered the state to refund over half a billion dollars ($536million) it collected since the tax took effect.
The tax court determined that the law violated the Constitution’s dormant Commerce Clause and Due Process Clause as well as ITFA. The tax violates the First Amendment by discriminating against digital advertising and exempting print and broadcast ad sales. The weak legal standing was clear from the start. Free State Foundation scholars predicted back in 2020 that the tax would not survive judicial scrutiny. This ruling also follows last year’s decision in federal appellate court that the tax’s pass-through provision – which prohibited companies from directly passing the tax costs to consumers – violated the First Amendment.
Comptroller of Maryland Brooke Lierman, in response to last week’s ruling, said that she and the Attorney General of Maryland would continue to defend the tax law. This could include possible appeals to the state trial court, where the law could get stuck for a while. Until a final outcome, the state will continue holding the taxes already collected.
These defeats in state tax and federal appellate courts (hopefully) signal trouble for digital ad taxes in other states. Illinois, Utah, and Washington have also passed digital ad taxes. Utah, apparently sensing legal trouble brewing in Maryland, crafted its 2026 digital ad tax law to skirt ITFA violations by avoiding the phrase “digital advertising.” Digital ad taxes are part of a wider push across states to tax digital goods and services. In 2026 alone, 22 states considered proposals to tax digital ad sales, with 12 bills enacted, according to a MultiState analysis.
This growth in digital tax proposals is happening as many states explore ways to tax their way out of their spending problems. Proponents argue they just want to raise revenue and modernize the tax code by taxing newer goods and services. In Maryland’s case, it adopted the tax partly to help fund the state’s massive education plan, which is contributing substantially to unsustainable spending and budget challenges. A MultisSate report describes how Maryland is among many states facing such serious budget issues.
Public antipathy towards large technology companies and targeted advertising is also a major impetus for the wave of digital ad tax proposals. Supporters of Maryland’s tax made clear (here and here) that they wanted the tax to penalize “big tech companies” for “monetiz[ing] personal data for targeted advertising.” Maryland Comptroller Lierman also said in her statement that an appeal would be to “ensure that the country's biggest tech companies pay their fair share.” And of course, digital advertising taxes are among many other regulatory proposals aimed at tech such as age verification, digital privacy, data center moratoriums, and AI regulation.
In this debate about digital ads, “tech giants,” private data, and “taxing the rich,” the tax proponents misunderstand who the real winners are from this ruling – Maryland businesses that buy ads and consumers who receive them. Without the tax, those businesses can afford more ads and pass along savings and better-targeted offers to everyday people – the consumers. And in the voluntary exchange that is the lifeblood of the Internet, people share information in return for free access to websites. Targeted advertising helps people browse websites freely to find the best products and services at the best possible prices, which helps lower-income consumers the most.
Marylanders need another win in the state trial court or, better yet, state surrender. Moreover, states need an approach opposite to what we’ve seen – one that embraces lower taxes and the Internet’s free market-oriented voluntary exchange of information.
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