Judge strikes down nation’s first tax on digital ads

A Maryland judge on Monday struck down the nation’s first tax on digital ads, ruling it violated two federal laws.

Anne Arundel County Circuit Judge Alison Ali ruled in favor of telecommunication companies Verizon Media and Comcast, both of which had challenged the state tax on online advertisements as unconstitutional and a violation of federal law.

Ali said because the law only taxed digital ads, it violated the Dormant Commerce Clause, which prohibits states from restricting interstate commerce.

The judge also ruled the state law violated the Internet Tax Freedom Act, which prohibits discriminatory taxes on electronic commerce and taxes on internet access.

The Hill has reached out to Maryland Attorney General Brian Frosh’s (D) office for comment.

The first-in-the-nation law taxes revenue raised from digital ads, targeting larger corporations like Google and Facebook. State lawmakers argued it could raise $250 million in the first year to fund schools and other critical resources.

The legislation included a 2.5 percent tax rate for businesses exceeding $100 million in global gross annual revenue and a 5 percent rate for companies making $1 billion or more. The rate increased up to 10 percent based on business revenue.

Maryland’s General Assembly, which is led by Democrats, passed the bill into law last year after overriding a veto from Republican Gov. Larry Hogan, who warned the legislation would harm small businesses and Maryland taxpayers.

The U.S. Chamber of Commerce and a group representing Facebook, Amazon and Google parent company Alphabet have also challenged the law in federal court, with oral arguments set for next month in that case.

The Associated Press contributed to this report.