Updated 10/17/2022: On October 17, 2022, Judge Alison Asti of Anne Arundel County Circuit Court struck down Maryland’s digital advertising tax, on the grounds that it is in violation of the U.S. Constitution as well as the federal Internet Tax Freedom Act.
In December 2021, the Maryland Comptroller issued final regulations interpreting the Maryland digital advertising services tax (DAT). These tax regulations come in the wake of an override of a veto from Larry Hogan and make Maryland the first state to enact a tax on digital advertising services revenue. The DAT became effective January 1, 2022, but is currently being challenged on several legal and constitutional grounds.
Who is Impacted by the Maryland Digital Advertising Tax?
The DAT will apply to entities with annual gross revenues of at least $100 million globally. If those entities have at least $1 million of revenue derived from digital advertising services within Maryland, they will be required to file a Maryland Form 600D quarterly. The tax rate ranges from 2.5% to 10% based on the taxpayer’s global annual gross revenues.
Rates Annual Gross Revenue
2.5% $100,000,000 to $1,000,000,000
5% $1,000,000,001 to $5,000,000,000
7.5% $5,000,000,001 to $15,000,000,000
10% More than $15,000,000,000
What is Considered Digital Advertising Services?
The Maryland Comptroller’s definition of digital advertising services “Includes advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.”
How is Taxable Revenue Calculated under the Digital Advertising Tax?
Taxable revenue derived from digital advertising services is calculated based on a device-based apportionment formula. This formula takes the number of devices that have accessed digital advertising services within Maryland divided by total devices that have accessed the services from any identifiable location. The result is then multiplied by gross revenue attributable to these services.
Identifying the location of “devices” must be determined using the best available information which can include, but is not limited to:
- Internet protocol
- Geolocation data
- Device registration
- Industry standard metrics
The Maryland Comptroller Intends on Moving Forward with Digital Advertising Tax
The actual implications of the DAT are still unclear due to the ongoing legal challenges. Due to the uncertain outcome of these challenges, businesses that exceed, or are close to exceeding, the minimum revenue thresholds should lay the groundwork to ensure they have the capabilities necessary to comply. To date, there is nothing preventing the DAT from moving forward, and the Maryland Comptroller is moving forward with plans to collect.
If you have any questions about the DAT, contact our team.