In 2021, Maryland became the first state to enact a digital advertising tax, an unprecedented approach to regulating and taxing revenue received from digital advertising services. Now, Apple, Inc.’s (Apple) constitutional challenge to the tax is progressing through Maryland’s courts.
“[The tax] singles out advertising services delivered over the internet for taxation while advertising services delivered through other means are expressly excluded from taxation altogether.”
maryland’s digital advertising tax
Maryland’s digital advertising tax is a tax on “advertisement services on a digital interface”, including banner advertising, search engine advertising, interstitial advertising and more. The tax is imposed on taxpayers with an annual global revenue of at least $100 million and is based on an increasing tax rate ranging from 2.5% to 10%. From Maryland’s perspective, it is well worth the fight, the state has already collected $32M in digital advertising tax revenue in 2023.
During the legislative process, the digital advertising tax bill was vetoed by Maryland Governor Larry Hogan, but ultimately the veto was overridden. Since then, the tax has faced pushback from legislators and several lawsuits, including one in federal district court brought by the U.S. Chamber of Commerce and four major technology trade associations.
Apple v. Maryland comptroller
Of the technology companies, Apple has emerged as more vocal than the others with concerns about the legality of the tax and its calculation. In a brief filed with the Maryland Tax Court, Apple stated that the tax “singles out advertising services delivered over the internet for taxation while advertising services delivered through other means are expressly excluded from taxation altogether.”
Initially, Apple filed a claim for refund for approximately $750,000 of digital advertising tax paid from Q1 to Q3 in 2022 which the Comptroller of the Treasury of Maryland (Comptroller) denied, arguing Apple incorrectly sought the refund by filing amended returns instead of using the prescribed form. Additionally, the Comptroller claimed Apple did not wait the required six months until filing its claim after the form was released.
Although the Comptroller filed a motion in Maryland Tax Court to dismiss the case, on November 17th, Judge Anthony Wisniewski denied the motion to dismiss, thereby allowing Apple and its challenge to the tax to proceed.
digital advertising tax’s future
Despite the numerous challenges, including a circuit court decision that was overturned by Maryland’s Supreme Court based on jurisdictional issues, Maryland’s digital advertising tax is still in effect.
With Maryland collecting $32M in digital advertising tax revenue to date in 2023, expect the ongoing battles with other states and their version of a digital advertising tax to continue.