On States’ Radar is Digital Advertising Tax, as Maryland First in the Nation to Enact

Maryland Delays Digital Advertising Tax

On April 12, 2021, the state Senate passed S.B. 787, delaying and amending the country’s first Digital Advertising Gross Revenues Tax, which imposes a tax ranging from 2.5% to 10% beginning with global annual gross revenues of $100M. If approved, the bill will stop companies from passing the new tax through to users with a separate fee and exempt broadcasters and media entities from the tax. The bill also moves the tax’s effective date to January 1, 2022. The delay will give the Comptroller much-needed time to clarify the bill’s compliance requirements, which should be welcome news to taxpayers.

This article was originally posted on February 12, 2021.

On February 12, 2021, Maryland lawmakers made history when they passed the country’s first digital tax advertising legislation, imposing tax on revenues derived from specified advertising services; including banner advertising, interstitial advertising, search engine advertising, and other comparable advertising services.

Who Is Subject to the Tax?

Based on the current legislation, the tax applies to persons that have:

  • $100 million or more of global annual gross revenues; and
  • $1 million or more of Maryland annual digital advertising revenues.

The tax is on the gross revenues derived from “certain digital advertising services.” Critics have argued that the definition of “digital advertising services” is ambiguous and may lead to inconsistent interpretations, and may result in uncertainty in determining the assignment of Maryland advertising revenues.

What Advertising Services Are Subject To Tax?

Since the tax defines “digital advertising services” in a rather broad manner, which includes “other comparable advertising services”, the scope for capturing many transaction types may be wide-ranging.

What Is The Tax Rate?

The “assessable base” for computing the tax is the annual gross revenue from digital advertising services in Maryland, with a tax rate determined based on the taxpayer’s global annual gross revenues:

  1. 2.5% of the assessable base for a person with global annual gross revenues of $100 million through $1 billion.
  2. 5% of the assessable base for a person with global annual gross revenues greater than $1 billion through $5 billion.
  3. 7.5% of the assessable base for a person with global annual gross revenues greater than $5 billion through $15 billion.
  4. 10% of the assessable base for a person with global annual gross revenues greater than $15 billion.

It is not yet clear how affiliated groups may be subject to the tax. In addition, while the tax is computed using a worldwide base, it appears the apportionment rules bound the “everywhere” component of the fraction to U.S. gross revenues from digital advertising services.


Larger businesses that are directly impacted by the digital tax may file litigation challenging the permissibility of the legislation. First, the Internet Tax Freedom Act prohibits states from imposing discriminatory taxes on electronic commerce. Second, it’s possible the legislation will face challenges under Commerce Clause, considering that the tax rate is determined based on global annual gross revenues, opposed to Maryland activities.

There are a number of other states with similar proposals under consideration, including Connecticut, Indiana, Montana, and New York. As states and localities continue to face significant budget shortfalls due to Covid-19, it is expected that states will continue to seek new revenues. If you like to discuss how this legislation may impact you, then contact Withum’s State and Local Tax Group for a deeper discussion.

Author: Bonnie Susmano, JD, MBA | [email protected]

reach out to our team if you have any questions or need further assistance.

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