An update from AAFB's Legislative Committee, Donna M.D. Thomas & Kaitlin D. Corey.
Last year, a Maryland Circuit Court Judge struck down MD’s digital ad tax which would have taxed revenue that the affected companies made on digital advertisements shown in Maryland. Judge Asti of Anne Arundel County Circuit Court found that the digital ad tax violates the US Constitution’s prohibition on state interference with interstate commerce and that it violates the federal Internet Tax Freedom Act, which prohibits discrimination against electronic commerce.
The state comptroller appealed the Anne Arundel County Circuit Court’s decision and argued at oral argument on May 5, 2023, that the companies did not exhaust their administrative remedies before challenging Maryland’s digital advertising tax in the Circuit Court. Counsel for the Maryland Comptroller said the Circuit Court should not have allowed the claims by the companies to proceed and ultimately strike down the tax because Verizon and Comcast did not exhaust the administrative remedies (go through state tax court) before proceeding to the Circuit Court. Justice Booth asked the counsel for the companies “you make a lot of interesting constitutional arguments. Some of us might agree with you, I don’t know, but why should we consider it here?” The attorney for the companies responded that the constitutional exception to the requirement applies to cases when the legislature enacts laws that are facially unconstitutional and the litigant challenges the law in its entirety. At oral argument, the Justices did not pose questions about the merits of the case and seemed to only want to discuss the procedural issue about whether this matter is premature because the companies did not exhaust their administrative remedies first.
On May 9, 2023, the Maryland Supreme Court vacated the order issued by the Anne Arundel County Circuit Court and held that the circuit court lacked jurisdiction over the action because the plaintiffs failed to exhaust their administrative remedies. Parties seeking to challenge the digital advertising tax are required to first exhaust their administrative remedies. Taxpayers could file a digital advertising tax return and pay the tax before commencing a refund action that could be considered first by the Maryland Tax Court.
The US Chamber of Commerce also challenged the law’s ban on advertisers passing their digital tax cost on to customers via a separate fee, surcharge or line item. US District Court Judge Griggsby declined to address the constitutional issues when she dismissed as moot the US Chamber’s lawsuit in December in light of the Anne Arundel County Circuit Court’s October decision that the law itself was unconstitutional. The US Chamber of Commerce appealed the dismissal to the Fourth Circuit in March of 2023. The Maryland Supreme Court order may affect the federal litigation because the circuit court ruling invaliding the tax has been vacated.
4892-0853-8473, v. 1
Comments