State appeals tax court ruling that struck down digital ad tax

State officials are asking a circuit court to review a state tax court ruling last month that struck down a first-of-its kind digital ad tax that was supposed to help fund Maryland education reform.

Three tech companies that challenged the 2021 Maryland law — Apple, Google and Peacock TV — won separate Maryland Tax Court rulings in August that found the law violated the federal Internet Tax Freedom Act. The appeal filed in Anne Arundel Circuit Court asks a judge to review those decisions.

“I respectfully disagree with the Maryland Tax Court’s decisions last month regarding Maryland’s Digital Advertising Gross Revenues Tax,” Comptroller Brooke Lierman said in an emailed statement. “I fully support the Attorney General of Maryland’s appeal of these decisions.

“I remain hopeful that, upon review, Maryland courts will find this law constitutional,” her statement said. “The General Assembly enacted this law to align with the realities of today’s economy, to ensure that the biggest tech companies doing business in Maryland pay their fair share and to provide essential support to Maryland’s public schools.”

Digital ad sales tax struck down by court

The circuit reviews the decision for any errors in law made by the tax court. No hearing date has been set.

A spokesperson for NetChoice, an industry group that counts Meta, X and Google among its members, said the group could not immediately comment on the appeal Tuesday.

The 2021 law targets big tech firms including Apple, Meta and Google. The law levies a 2.5% tax on companies reporting gross global annual revenue of at least $100 million. The tiered tax increases in increments of 2.5% based on earnings. Companies reporting $15 billion or more in gross global revenue pay the maximum rate of 10%.

The tax could generate as much as $250 million annually, according to one estimate. Taxes collected go to the Blueprint for Maryland’s Future K-12 education reforms.

To date, the state has collected about 43% of that estimated amount over the last five years. Maryland has collected more than a half-billion dollars over the last five years, but the taxes collected remain unspent pending the court challenges.

The law has bounced around in state and federal courts since its enactment. Portions of it were struck down last year by a federal appeals court as a violation of free speech rights.

Last month, the tax court ruled in favor of the three online companies. State tax court is an administrative agency rather than a judicial venue. The three decisions were similar despite differences in individual arguments.

In the ruling on the case filed by Peacock, the court found First Amendment violations. The law illegally treated digital streaming services different from other broadcasters, according to the ruling.

A similar law is also being challenged in court in Illinois by NetChoice. The Illinois law was based on Maryland’s law.

In their filing Thursday in Illinois, NetChoice references the Maryland Tax Court decisions in August.