Maryland Digital Ad Tax

Annapolis, MD, February 12, 2021
—AAF Maryland Leaders: I am sorry to let you know that despite our best efforts, earlier today the Maryland Senate voted to override Governor Hogan’s veto of the digital advertising tax. The bill will become law on March 14, 2021 and will apply retroactively to the beginning of this year. Our partners at McDermott Will & Emery advise us that the law:

Will retroactively impose tax on gross revenues earned from digital advertising services in Maryland since the beginning of this year. The bill imposes a tax on the “annual gross revenues of a person derived from digital advertising services in the state” and requires the filing of an annual return, on or before April 15 the following year. In addition, a person who expects to have more than $1 million in annual gross revenues derived from digital advertising services in Maryland also must file a declaration of estimated tax and 25% estimated payment on or before April 15, 2021. Remaining quarterly returns and payments will be required June 15, September 15, and December 15 of each year and will be reconciled as part of the annual return required on or before April 15 of the following year. As a reminder, the digital advertising services tax only applies to those with global annual gross revenues or $100 million or more.

We understand that a lawsuit will be filed in federal court early next week that will seek to invalidate the tax for violations of federal law and the U.S. Constitution. The suit will allege Maryland digital advertising services tax:

  1. Is preempted by the federal Internet Tax Freedom Act, which prohibits states from imposing discriminatory taxes on electronic commerce;
  2. Regulates and burdens out-of-state commerce and penalizes extraterritorial conduct in violation of the Commerce Clause and Due Process Clause of the Fourteenth Amendment of the U.S. Constitution;
  3. Interferes with the ability of the federal government to speak with one voice in violation of the foreign Commerce Clause;
  4. Is void for vagueness under the Due Process Clause of the Fourteenth Amendment by inviting arbitrary enforcement; and
  5. Violates the First Amendment by imposing a burdens on protected speech that are not essential to the achievement of a substantial government interest.

If you are interested in supporting this challenge please contact me and I will put you in touch with the appropriate parties.

Thank you for all of your hard work in trying to defeat this harmful tax. We will keep you informed of further developments.

Clark Rector

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