Maryland Appeals Court Strikes Down Digital Ad Tax Disclosure Ban: A Win for Transparency

On August 15, the 4th U.S. Circuit Court of Appeals struck down a controversial part of Maryland’s Digital Advertising Gross Revenues Tax Act.

The law, which imposed a tax on digital advertising revenues for large tech companies, included a provision barring companies from itemizing the tax on customer invoices.

The court ruled that this disclosure ban was unconstitutional under the First Amendment, framing it as a government attempt to control how businesses communicate tax burdens to customers.

Why This Matters

The ruling has major implications for both businesses subject to digital ad taxes and their clients:

• Billing Transparency Restored

  Companies can now show customers exactly when a surcharge results from state-imposed taxes.

  
  

• Compliance Becomes Clearer

  Tax professionals advising digital platforms and advertisers now have a green light to document ad tax surcharges without fear of penalty.

  
  

• Ripple Effect Across States

  Maryland was the first state to enact a digital ad tax, and several others are exploring similar measures. This ruling may deter states from attempting to restrict invoice disclosures.

  
  

Compliance and Planning Considerations

For CPAs, attorneys, and corporate tax teams:

• Client Communication: Businesses should update billing templates to separately disclose Maryland’s ad tax where applicable.

• Risk Assessment: The broader digital tax framework remains intact; companies must still remit the underlying tax.

• Policy Tracking: Expect litigation and legislative revisions in other states considering digital ad taxes (e.g., Connecticut, New York).

  
  

Looking Ahead

The Maryland decision highlights the legal vulnerability of digital tax regimes when paired with speech restrictions. While states may continue experimenting with taxing digital activity, courts are signaling that transparency cannot be legislated away.

For tax professionals, this is both a compliance update and a reminder: tax visibility matters as much as tax liability.

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