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February 12, 2021

Maryland legislature overrides governor's vetoes, enacts new taxes on digital advertising and sales of digital goods

This alert is updated to reflect the March 15, 2021, effective date for HB 932, which expands the state’s sales tax base to certain digital goods.

On February 12, 2021, the Maryland legislature overrode Maryland Governor Larry Hogan's vetoes of HB 732, which imposes a new tax on digital advertising, and HB 932, which extends the state's existing sales and use tax to the sale of digital goods.

Tax on digital advertising

Effective for tax year 2021, HB 732 imposes a tax on the annual gross revenue derived from digital advertising in the state. The tax applies a graduated rate that increases in increments based on the taxpayer's global annual revenues, as follows:

  • 2.5% of the assessable base for persons with global annual gross revenues of $100 million through $1 billion
  • 5% of the assessable base for persons with global annual gross revenues of more than $1 billion through $5 billion
  • 7.5% of the assessable base for persons with global annual gross revenues of more than $5 billion through $15 billion
  • 10% of the assessable base for persons with global annual gross revenues exceeding $15 billion

HB 732 defines "annual gross revenues" as income or revenue from all sources, before any expenses or taxes, computed according to generally accepted accounting principles.

Persons with annual gross revenues derived from digital advertising services within Maryland of at least $1 million must file a return with the Office of the Maryland Comptroller of Treasury on or before April 15 of the next year. Persons that reasonably expect their annual gross revenues from digital advertising services in the state to exceed that amount must file a declaration of estimated tax on or before April 15 of that year and pay quarterly estimated taxes. Persons subject to the tax must maintain records of the digital advertising services they provide in the state to substantiate the basis for their apportionment and calculation of the taxes owed on digital advertising gross revenues.

Failure to comply with provisions of this new tax could result in criminal penalties, including fines and imprisonment.

In anticipation of the veto override of HB 732, bills (SB 787 and HB 1200) introduced February 5 and February 8, 2021, respectively, would exempt from this new tax advertising on digital interfaces owned or operated by or on behalf of a broadcast entity and a news media entity. A "news media entity" would not include "an entity that is primarily an aggregator or republisher of third-party content." The proposed bills also would prohibit businesses subject to the new digital advertising tax from passing the cost of the tax to the customers who purchase the digital advertising services through a separate fee, surcharge or line-item. If enacted, these exemptions and restrictions would apply to tax years beginning in 2021.

A hearing on SB 787 has been scheduled for February 17, 2021, while a hearing on HB 1200 has been scheduled for February 26, 2021.

Sales and Use Tax on digital goods

HB 932 applies Maryland's existing 6% sales and use tax to digital products, such as digital code, streaming, music, ring tones, e-books and audio books, movies, online newspapers and cable, satellite and pay-per-view television programming. Retail sales of digital code or digital projects are presumed to be made in the state in which the customer's tax address is located.

Enactment of this provision aligns Maryland sales tax law with more than 30 state-level jurisdictions that also impose their sales and use tax on such goods.

Although the effective date listed in HB 932 is July 1, 2020, it will take effect March 15, 2021. Under the Maryland Constitution, an overridden bill is effective the later of its stated effective date or 30 days after the date of override. Because the date of the bill's override falls on a Sunday, HB 932 is effective on March 15, 2021, the next business day.


Legal concerns have been raised about the validity of Maryland's tax on digital advertising implemented by HB 732. These include potential violations of the First Amendment and the Commerce Clause of the U.S. Constitution and potential pre-emption by the federal Internet Tax Freedom Act due to the taxation of digital advertising as opposed to other means of advertising, which continue to be exempt from Maryland tax. Thus, even with the Maryland Legislature's override of Governor Hogan's veto, legal challenges can be expected to delay or even invalidate the measure.

The tax was also criticized as effectuating bad policy by potentially subjecting entities that provide or purchase digital advertising services in Maryland to a double tax as they already are subject to corporate or personal income taxes on their in-state earnings. Nevertheless, a growing number legislators in other states, including New York, Connecticut, Indiana, Montana, Nebraska, Oregon and Washington, have recently proposed similar sales/consumption-based taxes on gross receipts from digital advertising services or on the sale or exchange of personal data. Businesses that may directly or indirectly be affected by such taxes should expect to see additional state legislative activity throughout the country.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation
   • Karl Nicolas (
   • Scott Roberti (
   • Joseph Imbarlina (