Document Type



Taxation-State and Local | Tax Law


In this article, Professor Pomp reviews and critiques the recent attempts by Maryland and Nebraska to tax digital advertising.

Maryland has proposed a gross revenue tax on digital advertising with a progressive rate structure. Though the tax is based on Maryland revenue, the rate is determined by global revenue. While resembling an exemption with progression approach, commonly utilized in income taxes to assess a taxpayer’s ability to pay, gross receipts taxes like this one are not concerned with ability to pay. And the approach discriminates against taxpayers engaged in interstate commerce, since out-of-state business activity leads to a higher rate regardless of in-state revenue.

The tax also violates the Internet Tax Freedom Act’s (ITFA) nondiscrimination clause. This problem could be solved by redrafting the tax to apply to all advertising.

Furthermore, despite the fact that much of the production and content of the advertising occurs outside of Maryland, the tax has no apportionment provision. Yet gross receipts taxes must be apportioned.

Nebraska is expanding its sales tax to include gross receipts on digital advertising. Again, the ITFA problem could be avoided by applying the tax to all advertising.

The tax violates one of the tenets of sound sales tax policy: business inputs, including advertising, should not be taxed, or else the sales tax will cascade through certain industries.

Finally, Nebraska’s tax risks driving purchases of digital advertising into neighboring safe havens, of which there are many.