On August 14, 2026, the Maryland Tax Court struck down the state's Digital Advertising Gross Revenues Tax, the first of its kind in the United States. In Apple Inc. v. Comptroller of Maryland, the court granted the taxpayer's motion on all counts and reversed the Comptroller's denial of a refund. Decisions in the Google and Peacock TV cases issued the same day, and the court noted that its legal conclusions and outcomes were similar across all three.
The case for the tax
The strongest argument for Maryland is a fairness one. Digital platforms earn large sums from Maryland audiences, and state sales and income tax systems built for physical commerce capture little of it. A gross-revenue levy is simple to administer and hard to shift through transfer pricing. Legislators who want the largest advertisers to help fund public services, as Maryland's did in 2021, are not being unreasonable.
The problem is not the goal. It is the instrument.
What the court actually held
According to the order, the tax applies only to businesses with at least $100 million in global annual gross revenues and at least $1 million in Maryland digital ad revenue. The rate starts at 2.5% and rises to 10% once global revenues pass $15 billion. It exempts ads on interfaces run by broadcast entities and news media entities.
The court found no statewide Maryland tax on advertising that is not digital, including billboards, magazines, newspapers, direct mail, and broadcast radio and television. That mattered under the federal Internet Tax Freedom Act. The statute's definition of a discriminatory tax covers any state tax on electronic commerce that is not generally imposed and legally collectible on transactions involving similar property, goods, services, or information accomplished through other means. Maryland argued digital ads are not "similar" to other advertising. The court disagreed, and CalTax's summary reports it also found violations of the dormant Commerce Clause and the Due Process Clause. It found a First Amendment violation in Peacock's case, because of the media exemptions.
The apportionment finding deserves attention. Because the rate tiers depend on a company's worldwide revenue rather than its Maryland activity, CalTax reports the tax was found unfairly apportioned. Two companies with identical Maryland ad revenue can therefore pay very different rates.
Maryland also argued that the Internet Tax Freedom Act is unconstitutional commandeering under the Tenth Amendment and gives private parties no right to sue. The court rejected the state's motion on all counts.
Money and process
The Apple order concerns a refund for tax year 2022, and the court said refunds must be paid with interest. Per Avalara's analysis, Maryland had collected about $535.5 million through July 2026. Maryland Matters reported that the state has since appealed to the Anne Arundel County Circuit Court, around September 15. Tax Court decisions are appealable to circuit court within 30 days, so this is the first step of a longer road, not the end of the case.
The Tax Court is an administrative body, not a constitutional court. Its own order says it gives no agency deference on constitutional questions and reviews legal conclusions with fresh eyes. The ITFA holding is the most durable ground because it rests on plain statutory text. The First Amendment holding, tied to Peacock's specific facts, is likelier to be contested.
Why other states should worry
Avalara reports that Illinois and Utah digital ad taxes are scheduled to take effect January 1, 2027, and that Chicago's Social Media Amusement Tax took effect January 1, 2026 and already faces legal challenge. Washington's newer tax applies to digital and non-digital advertising services but exempts out-of-home advertising such as billboards. Avalara lists California, Massachusetts, Michigan, Minnesota, Nebraska, New York, Pennsylvania, Rhode Island and Tennessee among states that have introduced similar bills.
The lesson is uneven. A tax defined by the medium, meaning "on a digital interface," invites exactly the ITFA challenge that succeeded here. A tax on advertising as a category, regardless of channel, sidesteps the discrimination theory, though it still faces the apportionment and nexus questions. Washington's design shows the difference, and it is a fairer test of whether states can raise revenue from advertising at all.
Our view
Proportionate regulation means taxing economic activity neutrally, not singling out the internet for a levy that print and billboards escape. Federal law has said so since the Internet Tax Freedom Act of 1998. States that want revenue from advertisers can tax income fairly apportioned to in-state sales, which does not trigger the discrimination problem.
A gross-receipts tax on a single medium is also poor policy on the merits. It taxes revenue rather than profit and penalises the ad-supported model that lets free services reach users. Maryland's unspent collections, over half a billion dollars, show how much revenue a state can build a budget on before the courts weigh in. Illinois and Utah lawmakers have roughly three months to decide whether to redesign before their taxes start.
The circuit court appeal will decide whether this holds. Until then, any state considering a digital-only ad tax should treat the Maryland order as a warning, not a rounding error.