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Maryland Passes the Nation’s First Digital Advertising Tax

February 26, 2021

Maryland lawmakers approved the nation’s first tax on revenue from digital advertising displayed in the state. The tax rate is based on the ad sales generated by the company, and ranges between 2.5 and 10 percent, depending on global revenue. Companies making less than $100 million are not subject to the tax. It is estimated that the tax would generate $250 million in the first year, with the money benefitting state public schools.

Almost immediately after the new law was enacted, four trade associations, including the U.S. Chamber of Commerce, joined forces to file a legal challenge to the tax on the grounds that it is unconstitutional and violates the Internet Tax Freedom Act. Specifically, the complaint objects to the burdens the new law places on social media and search engine companies for their business activities occurring beyond the state, which goes against the Commerce and Due Process Clauses.