Judge strikes down provision of digital ad tax as First Amendment violation
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The order strikes down one portion of the state's first-of-its-kind tax on digital advertising that prohibited online companies from alerting consumers to the tax, by passing it on to them as a surcharge, fee or line item on their bills.
This story was originally published by Maryland Matters.
Maryland will not be able to enforce part of a 2021 law that allowed it to obscure the costs of a digital ad tax from consumers who were paying it.
The order — which will not be appealed by the state — strikes down one portion of the first-of-its-kind tax on digital advertising within the state. That provision prohibited online companies from alerting consumers to the tax, by passing it on to them as a surcharge, fee or line item on their bills.
Opponents of the law had said that it required them to collect the tax but prohibited them from telling customers where the tax came from — shielding lawmakers who approved the tax from criticism, and violating the businesses’ free speech rights, they said.
U.S. District Court Judge Lydia Kay Griggsby, in a one-page order Wednesday, issued a declaratory judgement in favor of the tech industry that had sued to block the tax, saying the targeted provision of the law “facially violates the First Amendment.”
Griggsby permanently barred the state from enforcing that provision, but left the digital advertising tax in place, for now.
Senate President Bill Ferguson (D-Baltimore), a sponsor of the 2021 bill, did not respond to a request for comment Friday. A spokesperson for the Office of the Comptroller said the office has Griggsby’s final order under review.
The case is just one of several challenges brought by NetChoice, a trade group representing large technology and social media companies, the U.S. Chamber of Commerce and the Computer & Communications Industry Association (CCIA).
A challenge to the tax itself remains open in Maryland Tax Court. The case was filed by big tech firms, including Apple and Meta. The state has collected nearly $419 million from the tax since 2022, according to the Office of the Comptroller.
An official with the NetChoice Litigation Center called Griggsby’s order “a victory for free speech, political discourse and internet freedom.”
“The Fourth Circuit was clear: states cannot shield themselves from criticism by preventing companies from highlighting the consequences of a new policy,” Paul Taske, co-director of the NetChoice Litigation Center, said in a statement.
“Businesses will finally be able to see that Maryland’s policies are directly impacting their bottom line. And Maryland will have to reckon with that,” Taske said.
Griggsby’s order comes two months after a three-judge panel of the 4th U.S. Circuit Court of Appeals ruled that the provision violated the First Amendment. The panel sent the case back to Griggsby, who in 2024 had sided with the plaintiffs — a group of tech firms and business associations — that the law created some First Amendment issues. Even so, she allowed the law to stand because the offending provision had “many constitutional applications.”
The 2021 law targets big tech firms including Apple, Meta, and Google.
Under the law, companies reporting gross global annual revenue of at least $100 million are subject to a 2.5% levy. The tax increases in increments of 2.5% to a maximum rate of 10% levied against companies reporting more than $15 billion in gross global revenue.
The state could collect as much as $250 million annually from the digital ad tax, according to a legislative analysis. The funds are earmarked for the state’s education reform program.
The sharply worded July ruling invoked American protests against the Colonial-era Stamp Act. Circuit Judge Julius Richardson, in that ruling, wrote “complaining about taxes remains a grand American political tradition.”
The questioned provision in the tax bill was intended to shield lawmakers from public criticism. The provision went too far, Richardson wrote.
“Perhaps fearing such complaints, Maryland paired its tax with another rule,” Richardson wrote for the court. “Companies that make money advertising on the internet must not only pay the tax, but avoid telling their customers how it affects pricing: No line items, no surcharges, no fees.”
The court’s ruling noted that elected officials might have a reason for such a provision, but “keeping out of hot water with voters” cannot be a justification.
“If companies pass on the cost of the tax, they must do so in silence — keeping customers in the dark about why prices have gone up and thereby insulating Maryland from political responsibility,” he wrote.
Maryland Matters is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Maryland Matters maintains editorial independence. Contact Editor Steve Crane for questions: editor@marylandmatters.org.