Maryland Enacts Digital Advertising Tax

Maryland Enacts Digital Advertising Tax

by Malcolm Ellerbe, Darcy Kooiker
March 05, 2021


On February 12, 2021, Maryland’s legislature voted to override the governor’s veto and become the first state to impose a digital advertising tax. The tax applies to annual gross revenue derived from digital advertising in the state and is imposed at scaled rates between 2.5% and 10%.

In Detail

Maryland’s House Bill 732 states that the Digital Advertising Gross Revenue Tax (digital advertising tax) will tax the annual gross revenues from advertisement services, including those on digital interfaces such as banner advertising, search engine advertising, interstitial advertising and other comparable advertising services.

The “assessable base” for the tax is defined as the annual gross revenues derived from digital advertising services in the state. Although the statute does not define “services derived from Maryland,” the law provides that the state comptroller adopt regulations that determine the state from which revenues from digital advertising services are derived.

The rate of tax is determined based on the taxpayer’s global annual gross revenues.

Tax Rate on Assessable Base Global Annual Gross Revenues
From Through
2.5% $100 million $1 billion
5.0% $1 billion $5 billion
7.5% $5 billion $15 billion
10.0% Greater than $15 billion

A return is only required from a taxpayer with annual gross revenue derived from digital advertising services in Maryland of at least $1 million.

The digital tax law is vague on vital definitions, creating uncertainty about where revenue is sourced and when it is subject to tax. It punts the creation of the sourcing methodology to the Department of Revenue to adopt by regulation.


Determining where eyeballs view digital ads will be challenging for determining how much is subject to Maryland’s tax. There does not appear to be an accurate way to determine this, as the viewer’s device IP address does not necessarily indicate where the viewer is located.

Will it stand? On February 18, 2021, the U.S. Chamber of Commerce, the Internet Association, NetChoice, and the Computer and Communications Industry Association filed a detailed complaint in federal court in Maryland. The complaint seeks an injunction to block the law from taking effect and asserts that the law is "illegal in myriad ways and should be declared unlawful and enjoined." The legal challenges include those related to free speech, the Internet Tax Freedom Act, and other constitutional provisions. This case's outcome will have serious ramifications for any state’s ability to impose a digital advertisement tax.

While Maryland is the first, it may not be the last; other jurisdictions such as New York, Washington DC, South Dakota, Nebraska and Montana have made similar proposals that either tax digital advertising revenue or sales of personal information. Foreign countries are also starting to tax digital services. We will keep you posted.

If you have any questions or need help, please contact our experts.

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