State Supreme Court overturns digital ad tax ruling

Maryland’s highest court overturned a lower court ruling involving a controversial internet ad tax. 

The order issued by the Supreme Court of Maryland overturns an Anne Arundel Circuit Court judge’s ruling that the tax was unconstitutional. In its four-page order, the court remanded the case back to Anne Arundel County Circuit Court Judge Alison Asti and ordered her to dismiss the case brought by Comcast of California, Maryland, Pennsylvania, Virginia and West Virginia LLC and others. 

“I applaud the Supreme Court for acting quickly because the revenues generated by this tax will help us provide our children the best education possible for success,” said Attorney General Anthony Brown (D) in a statement released Tuesday night. “The digital ad tax will support our collective goal of transforming schools across the State. It will help level the playing field so that underserved communities will have access to quality educational opportunities enjoyed by our highest performing schools.” 

The court is expected to issue a full opinion at a later date. On Tuesday night, the order said the circuit court “lacked jurisdiction over this action because the appellees failed to exhaust their administrative remedies.” 

The law — the first of its kind in the nation — was passed in 2020 and would impose a tiered tax on internet ad revenue in Maryland. 

Companies reporting $100 million of gross global annual revenue would be subject to a 2.5% levy. Tax rates max out at 10% for companies reporting more than $15 billion in gross global revenue. 

The tax would apply to large companies including Google, Facebook and Amazon. News organizations were excluded from the law. 

Legislative analysts projected Maryland could collect $250 million annually in tax revenue. Those same analysts raised the specter of court challenges related to the constitutionality of the law. 

Hogan vetoed the bill but the General Assembly and its Democratic supermajority overrode him in 2021. 

The override set off an expected series of state and federal legal challenges. 

And while the court battles raged on, the state collected about $107 million in voluntary payments. The comptroller’s office has also issued refunds of more than $14 million to taxpayers who asked for the payments to be returned, according to arguments before the Maryland Supreme Court last week. 

In Anne Arundel County, plaintiffs argued the law violated the First Amendment as well as the federal Internet Tax Freedom Act. 

Last October, Asti granted a summary judgment in favor of the plaintiffs. 

In oral arguments last week, state Supreme Court justices raised questions about the jurisdiction of the case. Attorneys representing the state also argued that the plaintiffs failed to exhaust available administrative remedies before seeking intervention by the courts. 

Claims in a federal case challenging the tax were dismissed for lack of jurisdiction and pending the decision in state court. An appeal by the U.S. Chamber of Commerce, NetChoice and Computer & Communications Industry Association remains pending in the Fourth Circuit appellate court.

Editor’s Note: This story was updated to state the opinion was released Tuesday. 

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