Maryland Ruling Exposes the Utah Targeted Advertising Tax’s Legal Vulnerability

Utah, Maryland, and Illinois are dissimilar states in many ways, but they have this in common: they are the first three states to impose digital advertising taxes. It’s a short list that may be getting shorter, as the Maryland TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Court just struck down that state’s tax (pending appeals), ruling that it violated the federal Internet Tax Freedom Act and the US Constitution’s Commerce Clause and Due Process Clause. Similar legal challenges are already pending in Utah and are expected to be filed in Illinois soon.

Utah’s targeted advertising tax is not identical to Maryland’s, but it shares key characteristics that make it vulnerable to the same challenges that sank Maryland’s tax, starting with a clash with the Internet Tax Freedom Act (ITFA).

Under ITFA, states are prohibited from levying taxes on electronic commerce that are not generally imposed on transactions involving “similar” property, goods, services, or information “accomplished through other means.” For instance, a state can’t tax streaming fitness classes if it doesn’t tax classes at the local gym. And it can’t tax digital advertising if it doesn’t tax television and radio ads, billboards, and marketing mail.