Maryland’s first-in-the-nation tax on digital advertising has been struck down by a judge in Anne Arundel County on Monday.
Judge Alison Asti ruled from the bench in favor of Comcast et al., in the case against Maryland’s Office of the Comptroller.
Asti of Anne Arundel County Circuit Court said the Maryland law violates the U.S. Constitution’s prohibition on state interference with interstate commerce. She also ruled that it violates the federal Internet Tax Freedom Act, which prohibits discrimination against electronic commerce.
The comptroller’s office said it is reviewing the decision and deciding on what will be its next steps.
The Maryland General Assembly, which is controlled by Democrats, approved the tax on internet advertising over the veto of Gov. Larry Hogan in 2021.
The state estimated the tax on digital advertising could raise about $250 million a year to help pay for a sweeping K-12 education measure to expand early childhood education, increase teacher salaries, boost college and career readiness and help struggling schools.
Verizon Media Inc. and Comcast challenged the law in the state’s court. The law also is being challenged in federal court by the U.S. Chamber of Commerce. Oral arguments in that case are scheduled for Nov. 29.
Senate President Bill Ferguson said in a statement that the state’s children deserve “a world-class 21st-century education system” that is funded appropriately.
“As a case of first impression, we always knew this issue would face a legal journey,” said Ferguson. “But, the State of Maryland has already won in federal court on the exact same legal issues. We are confident that the Attorney General will prevail in state courts on appeal.”
The Maryland law’s fate in the courts is being closely watched by other states that have also weighed a similar tax for online ads.
The law would have taxed revenue that the affected companies make on digital advertisements shown in Maryland.
The tax rate would have been 2.5% for businesses making more than $100 million in global gross annual revenue; 5% for companies making $1 billion or more; 7.5% for companies making $5 billion or more and 10% for companies making $15 billion or more.
Republican lawmakers cheered the judge’s ruling on Monday as “a huge win for Maryland’s small businesses who rely on affordable digital advertising to market their services.”
“This is a refreshing check on Maryland’s Democratic Supermajority who has no problem creating new, one-of-a-kind taxes that violate the First Amendment and tax Maryland’s job creators out of business,” said Sen. Bryan Simonaire, the Senate minority leader, and Sen. Justin Ready, the Senate minority whip, in a joint statement.
The Associated Press contributed to this story.