In February of 2021, Maryland’s Digital Ad Tax became law after the state legislature overrode the Governor’s veto. 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. Such platforms include Google, Facebook, Amazon, and others.

Soon after the tax became law, industry groups representing these platforms, including the Chamber of Commerce, the Internet Association, NetChoice, and the Computer & Communications Industry Association, challenged the Digital Ad Tax in the U.S. District Court for the District of Maryland. The challenge alleges, among other things, that the law violates the Internet Tax Freedom Act (ITFA). The ITFA prohibits state taxes that treat products and services sold in e-commerce less favorably than “similar” non-digital products and services. The groups’ key claims are incorrect, and their lawsuit seeks to misuse the ITFA to create a broad shelter from taxation by states in which extremely profitable digital advertising platforms do business.

On September 20, 2021, we filed a brief on behalf of tax law Professors Darien Shanske and Young Ran (Christine) Kim. The brief makes 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. In particular:
      • 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, which facilitates sophisticated, individualized user targeting—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.

In their brief, the professors urge the court to reject the attempt by industry groups to create a broad shelter from state tax law for tech titans. As Democracy Forward Senior Counsel & Legal Policy Director Aman George said:

“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. 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.”