A recent Maryland court ruling has cast serious doubt on Governor Gretchen Whitmer's proposal to impose a 4.7% tax on digital advertising sales through platforms like Google, Facebook, and Amazon. The decision by Maryland's Tax Court found that the state's digital advertising tax raises substantial constitutional concerns, according to an analysis published this week by the Mackinac Center for Public Policy. The ruling comes as twelve states have passed taxes on digital goods and services in 2026 alone, with ten more state legislatures weighing similar measures.
Maryland became the nation's first state to adopt a digital advertising tax in 2022, a levy that applied to online advertising while excluding print and broadcast ads. The tax was challenged by Apple, Google, and streaming service Peacock TV, and the state collected over half a billion dollars in revenue before the Tax Court's ruling. Michigan's Treasury Department had estimated that Whitmer's 2026 version of a digital advertising tax would generate at least $282 million in revenues, money the governor said would support the state's Medicaid program. The Michigan proposal would have applied a 4.7% excise tax to online ad revenues from Michigan viewers while creating exceptions for digital broadcast and news media. An earlier version introduced in 2025 as House Bill 4142 featured variable tax rates ranging from 2.5% to 10% based on companies' global sales totals.
The Maryland Tax Court determined that targeting online advertising while exempting traditional advertising conflicts with the 1998 Internet Tax Freedom Act, which prohibits state and local governments from imposing discriminatory taxes on electronic commerce. The court issued its decision on summary judgment, finding the constitutional issues clear enough that no trial testimony was needed to assess the tax's impact. According to analysis from Maryland's Free State Foundation cited in the report, the tax law violated multiple constitutional provisions beyond the federal statute, including "the Constitution's dormant Commerce Clause and Due Process Clause" as well as the First Amendment by "discriminating against digital advertising and exempting print and broadcast ad sales."
The report explains that while tech giants operating online platforms appear to be the targets of digital advertising taxes, the actual economic burden falls elsewhere. Michigan businesses are the most likely purchasers of advertisements viewed by Michigan consumers, and the companies running online platforms will pass along as much of the tax cost as possible to those advertisers. Businesses attempting to reach Michigan customers must then either reduce their ad purchases or increase product prices to absorb the higher advertising expenses. James Hohman, the Mackinac Center's Director of Fiscal Policy, noted in earlier analysis that Michigan's 2025 proposal had additional constitutional vulnerabilities because states are unlikely able to raise taxes on companies based on their activities outside state borders. Small Michigan businesses that depend on targeted online advertising to promote their products would face higher costs, disrupting the process that helps consumers find the best products and services at competitive prices.
Maryland must now return the more than half a billion dollars it collected from the tax following the court's decision. The report argues that Michigan should learn from Maryland's experience, warning that attempts to tax large technology companies' advertising and services may appeal to elected officials but will ultimately create problems when courts find these levies violate the U.S. Constitution. Though the Maryland ruling applies only within that state, both the decision and its underlying legal reasoning directly apply to Michigan's recent digital advertising tax proposals.