Md. high court tosses lawsuit that challenged digital advertising tax

The Maryland Supreme Court threw out a lawsuit Tuesday from a group of internet providers who challenged the state’s first-in-the-nation digital ad tax.

The high court ruled that the plaintiffs, Verizon and Comcast, did not exhaust their administrative remedies before suing in Anne Arundel County Circuit Court.

In a brief order, Chief Justice Matthew J. Fader sent the case back to the lower court to be dismissed. The justices will explain their reasoning in an opinion to be published later.

The decision vacates Anne Arundel County Circuit Judge Alison L. Asti’s ruling last year that the tax on digital advertising violates the federal Internet Tax Freedom Act, which prohibits discrimination against electronic commerce. Asti also found that the law violates the U.S. Constitution’s prohibition on state interference which interstate commerce.

Tuesday’s decision is a victory for the Maryland Comptroller’s Office, which appealed Asti’s  ruling and sought consideration before the top court, and the Attorney General’s Office, which defended the tax in court.

Attorney General Anthony Brown praised the Supreme Court’s swift decision in a statement Tuesday evening. The state has estimated that the tax, which applies to Big Tech companies like Facebook, Google and Amazon, could raise about $250 million per year to help pay for a sweeping K-12 education measure known as the Blueprint for Maryland’s Future.

“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,” Brown said.

“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.”

Lawyers and spokespeople for the plaintiffs did not respond to a request for comment on the decision.

Lawmakers enacted Maryland’s Digital Advertising Gross Revenue Tax Act in 2021 over then-Gov. Larry Hogan’s veto, teeing up a fight with Big Tech companies that felt unfairly targeted by the law. The legal battle has been closely watched by other states considering a similar tax.

The law also faced a challenge in U.S. District Court in Baltimore from the U.S. Chamber of Commerce and groups representing online companies and advertisers.

U.S. District Judge Lydia Kay Griggsby dismissed the federal court challenge in light of Asti’s earlier decision that the law is unconstitutional, but held open the possibility that the challenge could be refiled if Asti’s ruling was overturned on appeal.

The law taxes revenue that the affected companies make on digital advertisements shown in Maryland. It imposes a tax based on global annual gross revenues for companies that make more than $100 million globally.

According to the Maryland Comptroller’s Office, many businesses made quarterly estimated payments in 2022 despite the pending legal battle over the tax. Through April 30, the Comptroller’s Office has received payments of $106.9 million and refunded $14.5 million in digital ad tax payments.

Comptroller Brooke E. Lierman said the money from the tax is critical to implementing the Blueprint for Maryland’s Future.

“By ruling that Comcast prematurely brought its case to the courts before exhausting the full range of administrative options available to them to protest the digital ad tax, the Maryland Supreme Court is ensuring that companies cannot circumvent the administrative appeals process,” Lierman said in a statement.

“The Comptroller’s Office is committed to fairly administering the digital gross advertising revenues tax, including distributing revenue from the digital ad tax to the (Blueprint) as required in state law.”

The Associated Press contributed to this report.