Technology giant Apple is challenging Maryland’s tax on digital advertising in a lesser-known state tax court after previous legal challenges brought by other businesses failed.
The tax applies to companies based on the amount of money they make on ads that are shown to Marylanders as they click and scroll their way around the internet, and was designed to raise money for public schools.
Apple was the first to file an appeal to the Maryland Tax Court, and a hearing is set for Friday. But several other companies have followed with their own appeals in recent days: Google, Amazon Advertising, A9.com (a subsidiary of Amazon), Meta Platforms (parent company of Facebook and Instagram), Yahoo, Twitch, Snap, Microsoft Online, ABC, Peacock TV, IMDB.com, Grubhub and Catalina Marketing.
The tax, Apple argued in court filings, “singles out advertising services delivered over the Internet for taxation while advertising services delivered through other means are expressly excluded from taxation altogether.”
In other words: Apple argues it’s unfair to be required to pay taxes on digital ads and not those in other sources, including newspapers and magazines, or on radio stations.
The tax is only paid by companies making at least $100 million per year globally from digital ads, and it only applies on their share of advertising in Maryland. The tax ranges from 2.5% to 10%, with companies with larger advertising revenues paying more.
The tax is also inappropriate, according to Apple, because the tax rate is determined largely by how much digital advertising business a company does outside of the state.
Apple argues that the digital ad tax violates multiple federal laws as well as state and federal constitutional protections regarding commerce and due process.
Apple is seeking to have the tax struck down and to be refunded for what it’s paid so far in taxes. The exact dollar amount is unclear, because the Maryland Tax Court blacked out all of Apple’s financial information in copies of filings provided to The Baltimore Banner.
Apple did not respond to a request for comment.
“This suit is just one more proof point that Maryland has bitten off way more than it can chew with this short sighted and illegal tax,” said Doug Mayer, president of Americans for Digital Opportunity, which represents the interests of the advertising industry. While not a part of the case, the organization also opposes the tax.
“Digital advertising is utilized by businesses of all sizes and that is exactly who is paying for this now: Maryland businesses both small and large,” Mayer said. “Someday soon this tax will be ruled unconstitutional, and the state will be forced to pay back every penny it took — hope they haven’t started spending it.”
Comptroller Brooke Lierman’s office, which collects the tax, has filed a motion to dismiss Apple’s case that will be considered by a Maryland Tax Court judge on Friday morning.
The comptroller, represented by assistant attorneys general, argues on procedural grounds that Apple didn’t properly apply for a refund and isn’t due one. Lierman’s office declined to comment on the pending litigation.
The goal of the tax is to raise money — once estimated to be as much as $250 million per year — to help pay for the Blueprint for Maryland’s Future, an expensive and ambitious plan to improve the state’s public schools.
So far this year, the comptroller has collected $32 million in digital ad tax revenue.
Maryland was believed to be the first state in the nation to create such a tax when lawmakers passed it in 2020. Then-Gov. Larry Hogan, a Republican, vetoed the tax that year, but the veto was overturned by lawmakers in 2021.
Tech firms argued the tax was punitive and quickly challenged in court. That legal challenge failed, however, when the Supreme Court of Maryland ruled earlier this year that the companies hadn’t exhausted all of their administrative appeal options — including in Maryland Tax Court.
Lierman previously said that court ruling was important in “ensuring that companies cannot circumvent the administrative appeals process.” Lierman was a Democratic member of the House of Delegates when the tax was passed, voting to approve the tax and to override Hogan’s veto.
Lierman’s office resumed collecting the digital ad tax after the Supreme Court of Maryland ruling, and Apple turned to the Maryland Tax Court with its challenge this summer.
Apple, in its tax court filings, used the words of lawmakers in their case, quoting Senate President Bill Ferguson’s statements that “big tech” should pay their fair share of taxes.