Brief Urges Court to Reject Attempt by Industry Groups to Create a Broad Shelter from State Tax Law for Tech Titans like Google, Facebook, and Amazon

Brief Makes Clear That Maryland’s Digital Ad Tax Rests on Firm Legal Ground, Does Not Violate The Internet Tax Freedom Act

Washington, D.C.
— Late Monday, tax law professors Darien Shanske and Young Ran (Christine) Kim filed a brief in a lawsuit brought by the Chamber of Commerce and Big Tech challenging Maryland’s first-in-the-nation digital advertising tax. The professors’ brief urges the court to reject the lawsuit brought by industry groups, which seeks to misuse federal law to create a broad tax shelter for extremely profitable digital advertising platforms, including Google, Facebook, and Amazon. The brief was filed on the professors’ behalf by Democracy Forward.

“The plaintiffs’ claims in this case are simply incorrect as a matter of law,” said Darien Shanske, Professor of Law at the University of California, Davis, School of Law. “Furthermore, two important parts of federal law are supposed to keep this kind of creative obstruction from disrupting state revenue collection. First, courts are not supposed to strain to find ways to displace state revenue authority. Second, federal courts in particular are not supposed to be in the business of enjoining state revenue collection.”

“Digital advertising platforms operate in a two-sided market, which makes them fundamentally different from non-digital advertising,” said Young Ran (Christine) Kim, Associate Professor of Law at the University of Utah S.J. Quinney College of Law. “Moreover, the barter transaction side between the platform and Maryland users was not previously taxed. I support Maryland’s Digital Ad Tax because it aims to tax revenues generated by digital advertising platforms that were previously untaxed and that result from barter exchanges with Maryland users.”

Maryland’s digital advertising law imposes a tax on a percentage of revenues that advertising platforms with over $100 million in annual global revenue earn from digital ads that are served in Maryland.

In February, the Chamber of Commerce, the Internet Association, NetChoice, and the Computer & Communications Industry Association challenged Maryland’s digital ad tax in federal court, alleging, among other things, that the law violates the Internet Tax Freedom Act (ITFA), which prohibits state taxes that discriminate between e-commerce products and services and “similar” non-digital products and services. But the groups’ key claim is incorrect. Digital advertising, which is subject to taxation under Maryland’s law, is not similar to any non-digital service for the purposes of that law. Therefore, Maryland’s tax on select digital advertising revenue is not preempted by ITFA.

In their brief, Professors Shanske and Kim make clear that Maryland’s tax rests on firm legal ground and complies with the ITFA. As the professors explain:

  • Digital advertising—which is taxed under Maryland’s new law—is not “similar” to non-digital advertising, like ads published through print newspapers, mailings, billboards, or radio and television programming. Digital advertising is unlike non-digital advertising in important ways:
  • It has a unique business model, in which digital advertising platforms conduct two-sided transactions with two sets of participants (advertisers and users).
  • It relies on significant data extraction from users and allows sophisticated user targeting to occur—something traditional, non-digital advertising cannot do.
  • It uniquely allows advertisers to ensure an ad is seen and verify whether it had an impact.
  • It can allow the advertising platform complete control of ad placement.
  • The lawsuit’s claim that the ITFA preempts Maryland’s tax law is unsupported by the text of the ITFA, its legislative history, or principles of preemption.

For all these reasons, the professors write that the “court should reject Plaintiffs’ attempt to construct an extraordinarily broad shelter from state tax law.”

“Industry groups representing tech giants like Google, Facebook, and Amazon are seeking to contort the law to permanently exempt their clients from paying taxes on the ad revenue they generate in the state of Maryland,” said Democracy Forward Senior Counsel & Legal Policy Director Aman George. “We’re representing tax experts who explain the correct legal interpretation for the court to ensure Big Tech is not permitted to evade its responsibility under Maryland’s tax laws.”

The amicus brief was filed in the U.S. District Court for the District of Maryland on September 20, 2021. Read it here.


Democracy Forward is a nonprofit legal organization founded in 2017 to litigate challenges to unlawful government action on behalf of organizations, individuals, and municipalities. The organization has taken 650 legal actions and reversed dozens of harmful policies. Democracy Forward is expanding its work, building on its success to confront unlawful threats to democracy and social progress.

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