State’s Digital Ad Tax May Be Constitutional

Maryland became the first state in 2020 to enact a digital advertising gross revenues tax (DAT). Businesses with $100 million in global revenue are subject to a 2.5% tax on digital advertising, rising to 10% for businesses with more than $15 billion in gross global revenue. But any business with $1 million or more in annual gross revenue must file an annual return with the state. A lower court in Maryland said the tax is unconstitutional, but the state’s Supreme Court vacated the lower court decision for lack of jurisdiction (the taxpayers that brought the suit failed to exhaust administrative remedies). Why does this matter? Several other states, including Connecticut, Indiana, Massachusetts, New York, Rhode Island, and New Mexico, have similar measures under consideration. And, while the DAT currently applies to mega-corporations, at some point it could be applied to small businesses. #IdeaoftheDay