Overview of Maryland’s Digital Advertising Tax (DAT)
Since January 2022, Maryland’s Digital Advertising Tax (DAT) has been levied on revenues generated from digital advertising services within the state. The inaugural returns and estimated payments were due by April 15, 2022. However, the tax is under legal scrutiny, facing multiple challenges in both federal and state courts.
Legal Challenges at the State and Federal Levels
At the federal level, plaintiffs argue that the Digital Advertising Tax infringes upon First Amendment rights. Meanwhile, while state-level litigation claims violations of the U.S. Constitution and the Internet Tax Freedom Act. The U.S. Court of Appeals for the Fourth Circuit is reviewing the federal case. The Maryland Tax Court is handling the state-level dispute. Final rulings on these cases are anticipated for late 2025 at the earliest.
Understanding the Statute of Limitations for Refund Claims
Maryland’s Comptroller has not explicitly defined the refund claim period for DAT. The state generally enforces a three-year statute of limitations for tax refunds. Given the language of the DAT legislation, it is reasonable to assume that this standard limitation period applies, meaning the deadline for filing claims related to the initial estimated payments is April 15, 2025.
Implications of a Potential DAT Invalidation
If the courts invalidate DAT, the extent to which refunds will be issued remains uncertain.
Maryland’s Budget Shortfall and Its Impact on Refunds
The Due Process Clause of the Fourteenth Amendment requires states to provide retroactive relief for unconstitutional taxation. However, this obligation is balanced against the need to protect the state’s fiscal health, and such relief doesn’t always translate into direct monetary refunds.
Maryland’s projected budget deficit of $2.7 billion for 2025 could significantly influence the state’s approach to issuing refunds. If DAT is ruled unconstitutional, Maryland might limit the scope of retroactive refunds or restrict them to taxpayers directly involved in the litigation.
Why Taxpayers Should File Protective Refund Claims
Taxpayers who made the Digital Advertising Tax payments starting in April 2022 should file protective refund claims by April 15, 2025. This action will preserve their eligibility for any refunds that may result from the ongoing legal challenges.
If you have any further questions, talk to one of our SALT experts!
