On May 9, 2023, the Maryland Supreme Court reversed a circuit court’s October 2022 decision on the Maryland Digital Advertising Services Tax — reinstating it, for the time being, for businesses selling online ads. So, what does this mean for taxpayers?
Below we take a brief look at the Court’s decision and answer four key questions for businesses.
The Court’s Decision and Challenges Ahead
The Maryland Supreme Court held that the plaintiffs in the original case, Verizon and Comcast, lacked jurisdiction and did not address the substantive arguments concerning the validity of the tax or exhaust all their administrative remedies. The Court indicated it will provide more detail explaining why it vacated the circuit court’s decision and what it means to “exhaust all administrative remedies” at a later date.
While it seems like a decision has been made for the time being, a challenge at the Federal Court is still ongoing in the fourth circuit and will require Verizon and Comcast to refile their claim in the Maryland Tax Court.
4 Key Questions for Business Owners
1. What digital ad services are taxable under Maryland law?
Digital advertising services are advertisements on digital interfaces, such as software, websites or apps, including banner advertising, search engine advertising, interstitial advertising and comparable advertising services.
2. Who is subject to the Maryland Digital Ad tax?
The digital advertising tax is imposed on companies with a global annual gross revenue, from all sources, of at least $100 million and deriving from digital advertising in Maryland of at least $1 million. If your business meets this threshold, you must file a Digital Advertising Gross Revenue tax return on Form 600.
3. What are the tax rates on digital ads in Maryland?
Tax rates imposed will vary from 2.5% to 10%, depending on the taxpayer’s global gross annual revenue.
|Global Gross Annual Revenue
|Less than $100 million
|More than $100 million
4. What are the broader implications of the new Maryland tax?
Maryland’s digital advertising tax is the first of its kind nationwide, setting a precedent that could see several states jump aboard as they look to increase revenues. Businesses that sell or use digital advertisements will need to add this to their state and local tax checklists — and be prepared for advertising budgets to increase as their vendors look for ways to push through these additional tax costs.
Contact Nick Longo at email@example.com, Mike Fink at firstname.lastname@example.org or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.
While legal challenges to the tax are still pending, if your business has substantial revenue from digital advertisements, be aware of this decision, talk to your advisers and continue to monitor legal developments for any changes.