The first digital advertising tax in the country was introduced in Maryland in 2021 and became effective for taxable periods beginning January 1, 2022, over the governor’s veto. Even before its delayed effective date, several lawsuits were filed in federal District Court for the District of Maryland, challenging constitutional and federal statutory issues under the Commerce and Due Process Clauses and the Internet Tax Freedom Act (ITFA).
One of these cases brought by Comcast of California et al.,1 was heard in the Circuit Court of Anne Arundel County, where it was ruled that the law was unconstitutional and violated the ITFA and the First Amendment. The decision referred to the law as targeting out-of-state companies, especially in the method of calculating the liability based on gross revenues. The court agreed that the law violated the ITFA because advertising in a nondigital format is not taxed in the state. The exclusion of news media sources from the tax violated the First Amendment.
The Comptroller’s office appealed the decision, and last week the Maryland Supreme Court announced that it would hear the appeal2 in May. The Comptroller’s office requested that the court allow the state to continue to enforce the law while the case is pending, which was denied by the court.
Under consideration by the court will be two issues: 1) Did the companies follow the correct administrative process to challenge the constitutionality of the law? If so, 2) Does the tax violate the U.S. Constitution’s dormant Commerce Clause, First Amendment, or supremacy clause, or the federal ITFA?
We will keep you updated as this case progresses.
1 Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia LLC et al., v. Comptroller of the Treasury of Maryland, case number C-02-CV-21-000509, Circuit Court for the Anne Arundel County.
2 Comptroller v. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, MD., No. SCM-REG-0032-2022, review granted January 20, 2023.
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