Tech & Sourcing @ Morgan Lewis


Maryland enacted a state tax on digital advertising gross revenues on February 12, after overriding the governor’s veto. The passed law, which is the first of its kind in the United States, imposes “a tax on certain annual gross revenues derived from certain digital advertising services in the State” and requires those whose revenues will meet a revenue threshold to complete and file with the state comptroller a specific tax return to reflect such position. Failure to pay such taxes as required could result in interest owed on such unpaid taxes or criminal penalties for failing to file or falsely filing a return.

“Digital advertising services” include “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” This definition has prompted questions about how broadly this law can reach, and the law leaves regulations up to the comptroller to determine the state from which applicable digital advertising services are derived, which has a profound impact on the calculation of relevant digital advertising revenue.

The law sets out ranges of global annual gross revenues and the tax rate that would apply to the “Assessable Base,” meaning the annual gross revenues derived from digital advertising services in the state. These tax rates apply to those whose global annual gross revenues are at least $100 million, and range from 2.5% of the Assessable Base (for entities with total global revenues between $100 million and $1 billion) up to 10% of the Assessable Base (for entities with total global revenues greater than $15 billion). Those who have or reasonably expect to have annual gross revenues of at least $1 million in a calendar year derived from digital advertising services in Maryland must file a return with the comptroller by April 15 of the following year (those who expect such revenue must file quarterly estimated tax returns with the comptroller).

Failure to file a digital advertising gross revenues tax return with the state when required to do so constitutes a misdemeanor in Maryland and could result in a fine of up to $5,000, imprisonment not to exceed five years, or both. The digital advertising gross revenue tax was written to be applicable to all taxable years beginning after December 31, 2020. However, pending legislation may delay this timeline.