Maryland’s Digital Advertising Gross Revenues Tax is gone for now. The Maryland Tax Court invalidated it on August 14, 2026 in three companion cases, Apple Inc. v. Comptroller, No. 23-DA-OO-0456, Google LLC v. Comptroller, No. 23-DA-OO-0649, and Peacock TV, LLC v. Comptroller, No. 23-DA-OO-0654 (Md. Tax Ct. Aug. 14, 2026). The court found the tax preempted by the Internet Tax Freedom Act, 47 U.S.C. § 151 note, and separately invalid under the First Amendment, the dormant Commerce Clause, and due process. About $535 million in collections now awaits refund orders and an appeal.
Why should an Albuquerque business owner or a Santa Fe ad agency care? Because New Mexico also taxes advertising, digital included, but under one statute at one rate for every medium, and that uniformity is what keeps it inside the lines Congress drew. It also raises the questions of who pays GRT on a Google ad buy and when an agency’s media costs are taxable.
What did the Maryland Tax Court decide?
Maryland’s 2021 tax reached companies with at least $100 million in global revenue and $1 million in Maryland digital ad revenue, at rates of 2.5 percent to 10 percent keyed to worldwide revenue. The ITFA bars any state tax on electronic commerce that “is not generally imposed and legally collectible” on “transactions involving similar property, goods, services, or information accomplished through other means.” The court concluded that a search ad and a radio spot are the same service through different pipes, so taxing only one is preempted. It then applied Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). Maryland cleared nexus but failed the other three prongs, since a rate keyed to worldwide revenue reached value earned elsewhere and the tax in practice fell only on out-of-state firms. The First Amendment holding turned on the vague exemption for “news media” interfaces.
Is the Maryland fight over?
No. The Comptroller had 30 days to appeal to a circuit court. A separate piece of the statute already fell when, in Chamber of Commerce of the United States v. Lierman, No. 24-1727 (4th Cir. Aug. 15, 2025), the Fourth Circuit held that the statute’s ban on listing the tax as a separate invoice line item violated the First Amendment.
How does New Mexico tax advertising services?
New Mexico has no sales tax. Its gross receipts tax falls on the seller, and “gross receipts” under NMSA 1978 § 7-9-3.5 includes all consideration received from performing services in New Mexico. Advertising is a service, whether sold by a Roswell radio station or a California search engine.
The Taxation and Revenue Department confirmed the digital side in 3.2.213.13 NMAC, effective December 19, 2023. Receipts of a provider of a “digital platform” (any website or application a user can access or view) from selling advertising to advertisers inside or outside New Mexico are taxable when the platform can be accessed in the state. The rule created no new tax; it told out-of-state platforms the existing tax reached them once they crossed the economic-nexus threshold in NMSA 1978 § 7-9-3.3.
Why doesn’t New Mexico’s rule have the same ITFA problem?
The ITFA asks whether the state taxes the online version of a service while leaving the offline version alone. New Mexico applies the same statute, the same 4.875 percent state rate, and the same deductions whether the ad runs on a Sandia Peak billboard or a phone in Rio Rancho. There is no digital-only rate, no global-revenue schedule, and no news-media carve-out.
The one spot with daylight is the national-advertiser deduction. NMSA 1978 § 7-9-55(C) lets a station deduct receipts from selling radio or television time for a message supplied by a national or regional advertiser neither headquartered nor incorporated in New Mexico, and the department extended parallel treatment to digital platforms in 3.2.213.9 NMAC. That favors digital sellers rather than burdening them, and the ITFA prohibits only heavier taxation of e-commerce. The print publisher, with no comparable deduction, has the grievance, and the ITFA gives paper nothing.
An ITFA challenge to a New Mexico assessment would not go to federal court, because the Tax Injunction Act, 28 U.S.C. § 1341, keeps federal courts out of state tax collection, and the Tenth Circuit enforces that bar. The path is a protest under NMSA 1978 § 7-1-24, the Administrative Hearings Office, then the Court of Appeals.
Does an Albuquerque business owe GRT on Google or Meta ad buys?
The platform, not the advertiser, is the taxpayer, though a registered platform may add the tax to its invoice. If the seller is not subject to GRT on the sale, the New Mexico business using the service can owe compensating tax under NMSA 1978 § 7-9-7 on the value of the service. That item is the one most often missed in a TRD audit.
A retailer with stores in Albuquerque, El Paso, and Tucson is a “regional” advertiser under 3.2.213.7 NMAC, so the platform’s receipts from it are deductible; a single-location Nob Hill restaurant gets no such break.
When does an agency owe GRT on pass-through media costs?
If an agency buys media in its own name and bills the client one number, the whole billing is the agency’s gross receipts. NMSA 1978 § 7-9-3.5(A)(3)(f) excludes amounts received “solely on behalf of another in a disclosed agency capacity,” and 3.2.1.19 NMAC repeats the rule for reimbursed expenses. “Disclosed” is read strictly: the media vendor has to know it is contracting with the client through the agency, and the paperwork has to say so before the money moves.
Under 3.2.206.13 NMAC, a station can deduct time sold to an agency for resale if the agency delivers a nontaxable transaction certificate and the contract says the agency buys as principal. An agency can be a reseller or a disclosed agent, not both on the same buy, and § 7-9-55(C) makes its own New Mexico commissions non-deductible either way.
| Ad purchase scenario | GRT taxpayer | Taxable amount | Deduction or exclusion |
|---|---|---|---|
| Albuquerque restaurant buys search ads directly | The platform | Full ad spend | None (local advertiser) |
| Multi-state retailer buys social ads directly | The platform | Zero | § 7-9-55(C) and 3.2.213.9 NMAC |
| Agency buys as principal, bills one number | The agency | Media plus fee | NTTC resale deduction upstream |
| Agency buys as disclosed agent, bills fee separately | The agency on fee only | Fee | § 7-9-3.5(A)(3)(f) exclusion on media |
| Unregistered out-of-state vendor sells to NM business | The NM buyer | Value of service | Compensating tax, § 7-9-7 |
What does the choice cost an Albuquerque agency?
Take a North Valley agency managing $1.2 million a year of digital and broadcast media for eleven local clients, none a national or regional advertiser, at a 15 percent fee of $180,000, with Albuquerque’s combined rate at about 7.625 percent.
Structure one: the agency contracts with Google, Meta, and two local stations in its own name and bills each client one figure. Gross receipts are $1,380,000 and the tax is about $105,225, less any NTTC deductions on the broadcast buys. Structure two: the engagement letters name the agency as disclosed agent for media, insertion orders list the client as advertiser, vendors invoice the client care of the agency, media dollars run through a client-funds account, and the agency bills its $180,000 fee separately. Gross receipts are $180,000 and the tax is about $13,725.
The gap is roughly $91,500 a year on identical economics, and it compounds when an audit covers several years with interest and penalties under NMSA 1978 §§ 7-1-67 and 7-1-69. From an accountant’s chair the second structure also produces cleaner books. A switch should be treated as prospective, because the auditor reads what the documents said when each payment was made.
What should a New Mexico business check now?
An advertiser should pull its platform invoices, confirm whether GRT is charged, and if not, confirm it has reported compensating tax. An agency should reread its engagement letters asking whether an auditor, seeing only the documents, would call it a disclosed agent. A refund claim must be filed within three years under NMSA 1978 § 7-1-26, and a protest within 90 days of assessment under § 7-1-24. Miss the 90 days and the assessment is final.
Frequently Asked Questions
Does New Mexico have a digital advertising tax like Maryland's?
No. New Mexico taxes all advertising services, digital included, under its general gross receipts tax at one rate. Regulation 3.2.213.13 NMAC, effective December 19, 2023, confirmed that out-of-state platforms selling ads viewable in New Mexico owe GRT.
Why did the Maryland Tax Court strike down the digital ad tax?
The court held on August 14, 2026 that the levy was preempted by the Internet Tax Freedom Act because it taxed digital advertising while leaving similar non-digital advertising untaxed. It also found the tax failed the dormant Commerce Clause, due process, and the First Amendment.
Do I owe New Mexico gross receipts tax when I buy Google or Facebook ads?
The gross receipts tax is the platform’s tax, but the platform may add it to your invoice. If the vendor is not subject to GRT on the sale, you can owe compensating tax on the value of the service under NMSA 1978 § 7-9-7.
Can a New Mexico ad agency avoid paying GRT on media costs it passes through to clients?
Only if the agency incurs those costs as a disclosed agent for the client under NMSA 1978 § 7-9-3.5(A)(3)(f) and 3.2.1.19 NMAC. The engagement letter, insertion orders, and vendor invoices must show the client as the advertiser and the agency as its agent; otherwise the full billing is the agency’s gross receipts.
What is the national or regional advertiser deduction in New Mexico?
NMSA 1978 § 7-9-55(C) lets broadcasters deduct receipts from selling airtime for messages supplied by a national or regional advertiser that is not headquartered or incorporated in New Mexico. Regulation 3.2.213.9 NMAC extends the same deduction to digital platforms. A regional advertiser generally has retail locations in more than one state.
Could a New Mexico business challenge a GRT assessment under the Internet Tax Freedom Act?
In theory, but the challenge would have to proceed through a protest to the Taxation and Revenue Department within 90 days, then the Administrative Hearings Office and the Court of Appeals. The Tax Injunction Act, 28 U.S.C. § 1341, keeps the claim out of federal court, and because New Mexico taxes digital and non-digital advertising alike, the claim faces a steep climb.
How North Star Law Firm Can Help
North Star Law Firm advises New Mexico businesses, advertising agencies, and out-of-state platforms on gross receipts tax exposure, including digital advertising receipts, the disclosed-agency exclusion for pass-through media costs, and compensating tax. The firm assists with Taxation and Revenue Department audits, protests, and refund claims, working with New Mexico-licensed counsel where state court is involved, and handles the federal side of the same facts through its IRS audit defense and business entity and structuring practices. Phillip Zagotti, JD/CPA, represents New Mexico taxpayers before the IRS and the U.S. Tax Court and brings legal and accounting training to questions of how an agency’s contracts and books should line up. The firm’s gross receipts tax audit guide covers the audit process in more depth. To review an advertising arrangement or an assessment, contact North Star Law Firm.