Today, the Maryland Tax Court invalidated the state’s digital advertising tax on the grounds that it violates the Internet Tax Freedom Act, the Commerce Clause (implicating three of the four prongs of the Complete Auto test), and the Due Process Clause.
The Tax Court is an administrative court, so Maryland can seek judicial review by the circuit court with potential appeal to the appellate and state supreme court, but today’s ruling was an overwhelming victory for the petitioners. The tax court identified five fatal flaws in the tax, any one of which was sufficient to strike it down. The case isn’t over, but the writing is on the wall.
Crucially, while some aspects of the successful Commerce Clause challenge against the tax pertained to the unique design of Maryland’s tax—particularly a graduated rate structure based on global, rather than Maryland-specific, revenues—most of the reasons Maryland’s tax failed in court are equally pertinent to recently-adopted digital advertising taxes in Illinois and Utah, and to those that have been proposed in other states.
I have a Tax Foundation blog post responding today’s ruling, which you can read here.
Taxes, Tech, and Income Inequality
Earlier today, I also went on Substack Live with Liz Farmer of Long Story Short to discuss taxes, tech, and income inequality. You can watch our conversation here.
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Cover Photo Credit: By Martin Falbisoner - Own work, CC BY-SA 3.0