A federal judge in Baltimore has rejected a First Amendment challenge to Maryland’s 2021 law imposing a tax on internet advertisements. U.S. District Judge Lydia Kay Griggsby granted the state’s motion to dismiss the case, ruling that the plaintiffs failed to demonstrate that the law’s unconstitutional applications substantially outweigh its constitutional ones.

The Digital Advertising Tax Act (DATA) imposes a tiered tax on internet ad revenue in Maryland, potentially generating up to $250 million annually for the state’s education program. Companies with global annual revenues of $100 million or more are subject to the tax, with rates increasing up to 10% for those reporting over $15 billion in revenue.

Judge Griggsby’s 20-page opinion addressed the law’s “pass-through prohibition,” which allows companies to adjust pricing to account for the tax but prohibits them from adding a specific fee, surcharge, or line item on invoices related to the tax. The judge found that the plaintiffs’ use of “hypothetical invoices” was insufficient to prove the law unconstitutional as applied.

The ruling marks a setback for large tech industries seeking to overturn the tax, the first of its kind in the United States. However, at least four other cases are currently proceeding through tax court that could potentially overturn the law.

Maryland Senate President Bill Ferguson, who sponsored the legislation, welcomed the decision, stating it upholds a “constitutional and fair program” benefiting Maryland’s education system. The U.S. Chamber of Commerce expressed disappointment with the ruling but did not comment on potential plans to appeal.

This decision follows previous legal challenges to the law, including a state court ruling that was overturned by the Supreme Court of Maryland. Meanwhile, tech giants such as Apple, Meta, and Google continue to pursue cases in Maryland Tax Court, with some attorneys predicting the law could be overturned as early as this fall on grounds that it violates the federal Internet Tax Freedom Act.

The ongoing legal battles surrounding Maryland’s digital ad tax highlight the complex interplay between state revenue efforts, tech industry interests, and constitutional rights in the rapidly evolving digital economy.