Maryland passed the first digital advertising tax in the country in 2021. Since then, at least 13 other states have proposed something similar. None of them have passed it.
That’s the honest state of play heading into 2026: one active law, a lot of pending proposals, and a legal battle in Maryland that’s far from settled. If your business generates revenue from digital advertising, here’s what you actually need to know.
What Is a Digital Advertising Tax?
A digital advertising tax is a state-level tax imposed on gross revenues earned from digital advertising services. Unlike sales tax, which is typically collected from the buyer, these taxes are levied directly on the company earning the ad revenue.
That distinction matters more than it might seem. You can’t simply add a line item to an invoice and call it done. The tax burden falls on the platform or seller generating the revenue, which means it affects pricing strategy, margins, and how you structure your services.
The types of advertising typically covered under these proposals include:
- Display advertising on websites and apps
- Search engine advertising
- Social media advertising
- Programmatic advertising and ad exchanges
The calculation isn’t simple either. To comply, you’d need to know how much of your digital advertising revenue is attributable to users in each taxing state, usually determined by where the ad was displayed based on IP address or device location. That’s a data infrastructure challenge before it’s even a tax compliance challenge.
Maryland: The Only State with an Active Law (and It’s Complicated)
Maryland became the first state to enact a digital advertising tax in February 2021, when the legislature overrode Governor Larry Hogan’s veto. The tax took effect for the 2022 tax year.
Here’s how it works:
Who it applies to: Companies with at least $100 million in global annual gross revenues AND at least $1 million in digital advertising revenue derived from Maryland users.
Rate structure:
- $100M to $1B in global revenue: 2.5%
- $1B to $5B: 5%
- $5B to $15B: 7.5%
- Over $15B: 10%
What’s taxed: Gross revenues from digital advertising delivered to devices with IP addresses located in Maryland.
Those rates are not marginal. Once a company crosses a threshold, that rate applies to their entire Maryland-sourced ad revenue base. A company with $1.5 billion in global revenue pays 5% on all its Maryland digital ad revenue, not just the portion above the $1 billion line.
The Legal Picture Is Messy
The original article called Maryland a working blueprint that other states were following. That’s not an accurate read of where things stand.
Maryland has collected roughly $90 million per year since the tax took effect, well short of the $250 million annually the state projected. And that revenue may need to be refunded. Multiple lawsuits are still active, challenging the tax on grounds including the Internet Tax Freedom Act, the Commerce Clause, Due Process, and the First Amendment.
The most significant recent development: in August 2025, the U.S. Court of Appeals for the Fourth Circuit ruled that the provision prohibiting companies from telling customers about the tax violates the First Amendment. That provision, which required companies to absorb the tax in silence, was subsequently struck down permanently by the district court in October 2025. The state chose not to appeal.
The tax itself is still in effect, but challenges to its core structure are still pending in the Maryland Tax Court, with cases filed by Apple, Google, Meta, and Peacock TV. Hearings were held in July 2025 and decisions are expected in late 2025 or 2026. If those cases succeed, Maryland may need to issue refunds on everything collected to date.
What other states are watching isn’t a success story. It’s a cautionary one. Legal scholars and tax policy observers have described Maryland’s experience as a warning about the risks of taxing the digital economy without fully accounting for constitutional constraints.
States with Pending Proposals
None of these have passed. All are watching what happens in Maryland before moving forward.
Rhode Island has introduced legislation modeled on Maryland’s approach, targeting companies with significant global revenues on digital advertising delivered to Rhode Island users.
Connecticut has been exploring digital advertising taxation as part of broader budget conversations. Proposals have surfaced in multiple legislative sessions.
Indiana introduced a bill with similar provisions targeting major platforms. Legislative hearings have taken place and there has been bipartisan interest, though no final vote.
Arkansas introduced legislation mirroring Maryland’s structure, with a focus on revenue from out-of-state technology companies serving Arkansas residents.
Massachusetts has seen proposals in early stages. Given the size of its tech and advertising market, a Massachusetts law would have significant reach, which is part of why it’s attracting attention from both supporters and opponents.
Each state is taking a slightly different approach to thresholds, rate structures, and definitions. If any of these pass, compliance won’t translate cleanly from one state to the next.
How This Differs from Sales Tax Compliance
If you’re already managing multistate sales tax, don’t assume digital advertising taxes will plug neatly into your existing processes. They’re a different animal.
The tax base is different. Sales tax applies to the transaction price. Digital advertising taxes apply to gross receipts from advertising services, whether or not those services are profitable.
Who pays is different. Sales tax is collected from the buyer and remitted by the seller. Digital advertising taxes are imposed directly on the revenue earner. There’s no pass-through by default.
Nexus triggers are different. Sales tax nexus flows from physical presence or economic activity thresholds. Digital advertising tax exposure is determined by where the ad is viewed, based on device location. That’s a fundamentally different footprint.
The apportionment challenge is real. Determining how much revenue is sourced to a specific state requires knowing where each ad impression was delivered. If your ad tech stack can’t produce that data by state, you have a systems problem before you have a compliance problem.
How to Think About Your Exposure
If your business earns revenue from digital advertising, here’s a practical framework for evaluating where you stand.
Start with global revenue. Most proposals use a global revenue floor of $100 million to determine applicability. If you’re well below that, current proposals likely don’t reach you. But thresholds can change, so don’t stop the analysis there entirely.
Calculate your state-level digital advertising revenue. For states with active laws or well-advanced proposals, determine how much of your digital advertising revenue is attributable to users in those states. This requires reliable data on where ads are delivered.
Apply the rate structure. Once you have state-level revenue, apply the applicable rate based on your global revenue tier. Remember the rates aren’t marginal.
Factor in compliance costs. The operational cost of tracking, reporting, and filing across multiple states can approach or exceed the actual tax liability, especially in the early stages of a new compliance program.
Document your methodology. However you calculate state-specific apportionment, write it down and apply it consistently. If you’re ever examined, you’ll need to show your work.
Common Mistakes to Avoid
Treating this like a solved problem. Maryland is the only enacted law, and it’s still being litigated. But that doesn’t mean you should ignore the issue. Planning for a possible multi-state patchwork now is cheaper than scrambling when a second state passes something.
Assuming your current infrastructure is ready. If your ad tech platform doesn’t produce state-level impression or revenue data, that’s the first gap to close. Tax compliance depends entirely on having accurate underlying data.
Waiting for full legal clarity. There will be more court decisions. Some provisions may be struck down. But waiting for a final, clean answer is a high-risk strategy when the underlying law is already in effect in at least one state and more proposals are advancing.
Underestimating the pricing implications. Even if the pass-through prohibition in Maryland is now gone following the First Amendment ruling, you still need a pricing strategy. How you absorb or communicate these costs is a business decision, not just a compliance one.
Action Checklist
Assessment
- Calculate your company’s global annual gross revenues
- Determine your digital advertising revenue by state, or identify where your data gaps are
- Identify which states’ thresholds you currently meet or may meet as you grow
- Review what geographic reporting your current ad tech stack can produce
Monitoring
- Build a process for tracking legislative developments in Maryland, Rhode Island, Connecticut, Indiana, Arkansas, and Massachusetts
- Set quarterly reminders to review state tax updates
- Know who on your team owns this topic, or identify an outside resource
Data Infrastructure
- Audit your ability to attribute ad impressions and revenue to user location by state
- Close any gaps in state-level reporting before compliance deadlines arrive
- Develop a consistent apportionment methodology and document it
Financial Planning
- Model your tax exposure under current Maryland law and under scenarios where one or more additional states pass legislation
- Build digital advertising tax estimates into your budget planning
- Work through the pricing implications with finance and sales leadership
Compliance Preparation
- Identify filing deadlines and requirements for states with active laws
- Determine whether you need outside support for compliance
- Keep records of your apportionment methodology and calculations
When to Bring in Outside Help
Some businesses can manage this internally. Others will find the combination of legal uncertainty, data requirements, and cross-state variation more than their internal team is set up to handle.
You’re probably fine internally if your digital advertising revenue is concentrated in one or two states, your ad tech already produces reliable geographic data, and you have tax professionals on staff with gross receipts tax experience.
You should consider outside support if your digital advertising revenue spans multiple states, your current systems can’t easily break out revenue by user location, or you’re trying to assess exposure in a state with advancing legislation and aren’t sure how the rules would apply to your business.
Digital advertising taxes sit at the intersection of tax law, technology, and data infrastructure. That’s not a combination most internal tax teams deal with regularly.
If you’re uncertain about where your business stands, a conversation with a sales tax expert who knows this territory can help you get clear quickly. Our What’s Next consultations are built for exactly that, no commitment, no pressure, just a straight answer about what applies to your situation and what to do about it.
Ready to understand your exposure? Schedule a free What’s Next consultation with The Sales Tax People.
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