The United States does not have a federal digital services tax. Maryland is the only U.S. jurisdiction with an active tax on digital advertising revenue, and it remains under legal challenge. At the international level, a January 2025 executive action pulled the country out of the OECD global tax deal that was meant to replace unilateral digital taxes, and Washington continues to rely on trade retaliation against foreign governments that impose them on American technology firms.
Why There Is No Federal Digital Services Tax
Federal policymakers have consistently opposed digital services taxes because they single out large American technology companies. A typical digital services tax applies to gross revenue from online advertising, data collection, or marketplace intermediation, without regard to whether the company earns any profit in that market. The U.S. Treasury treats that structure as inconsistent with longstanding international tax norms, which tax net income rather than gross revenue, and views the taxes as discriminatory because the firms most affected are U.S.-headquartered.
That position has held across administrations. Instead of enacting a domestic version, the federal government has pursued two lines of action: negotiating a multilateral replacement at the OECD, and threatening tariffs against countries that adopt their own.
Maryland’s Digital Advertising Tax
Maryland became the first state to tax digital advertising revenue. The tax applies only to companies with at least $100 million in global annual gross revenue, so it reaches only the largest firms in the industry. Rates are graduated based on that global revenue figure:
- 2.5% for companies with $100 million to $1 billion in global revenue
- 5% for $1 billion to $5 billion
- 7.5% for $5 billion to $15 billion
- 10% for companies exceeding $15 billion
These rates apply to the portion of digital advertising revenue apportioned to Maryland, not to a company’s entire global revenue.1Maryland General Assembly. Maryland Code Tax-General 7.5-103 – Digital Advertising Gross Revenues Tax Rate The practical difficulty for companies is determining how much revenue is “derived from” Maryland, which requires tracking where ads are displayed based on user location data.
The Legal Fight Over the Tax
No court has yet ruled on whether Maryland’s tax is constitutional. Comcast and other companies filed an early declaratory judgment action arguing that the tax violated the Commerce Clause and federal law, but the Supreme Court of Maryland dismissed that case in 2023 on procedural grounds, holding that the companies had to work through the state’s administrative tax dispute process first.2Maryland Courts. Comptroller v. Comcast of California, Maryland, Pennsylvania The constitutional questions were never reached.
Apple then filed a refund claim in the Maryland Tax Court, and that case is proceeding with expert testimony from Apple, Google, Meta, and Peacock TV. A separate federal court case struck down the provision of the law that had barred companies from passing the tax on to their customers, though the underlying tax survived that ruling.
The core objections remain live. Opponents argue the tax discriminates against interstate commerce because it hits digital advertising but not print or broadcast, and that it violates the federal Internet Tax Freedom Act, which bars states from imposing discriminatory taxes on electronic commerce that don’t apply equally to comparable offline transactions.3Office of the Law Revision Counsel. 47 USC 151 – Note: Internet Tax Freedom Act Moratorium The moratorium became permanent in 2015 through the Trade Facilitation and Trade Enforcement Act.4U.S. Government Publishing Office. Trade Facilitation and Trade Enforcement Act of 2015 Until a court rules on the merits, the tax stays in effect but legally uncertain.
Other States Considering Similar Taxes
Several states have introduced digital advertising tax bills, but none has passed one. Connecticut has proposed a framework closely modeled on Maryland’s law, using the same $100 million global revenue floor and the same 2.5% to 10% rate tiers. Rhode Island’s proposal targets a narrower group: companies with over $1 billion in global revenue would pay 10% on Rhode Island-sourced digital advertising revenue above $1 million. Indiana and Massachusetts have each seen multiple proposals with different rate structures and thresholds, but none has advanced.
The legal cloud over Maryland’s tax has likely slowed momentum in other statehouses. If Maryland’s law survives, other states have a template. If it doesn’t, most of these proposals will not go anywhere.
How the U.S. Responds to Foreign Digital Taxes
The federal government’s main tool against foreign digital services taxes is Section 301 of the Trade Act of 1974, which authorizes the U.S. Trade Representative to investigate foreign practices that are unreasonable or discriminatory toward American commerce and to impose retaliatory tariffs.5Office of the Law Revision Counsel. 19 USC 2411 – Actions by United States Trade Representative
Between 2019 and 2021, the USTR investigated digital services taxes in Austria, France, India, Italy, Spain, Turkey, and the United Kingdom, and concluded in each case that the tax discriminated against U.S. digital companies.6Congressional Research Service. Canada’s Digital Services Tax Act – Issues Facing Congress The French investigation led to a determination to impose 25% additional tariffs on roughly $1.3 billion in French goods.7Federal Register. Notice of Action in the Section 301 Investigation of France’s Digital Services Tax Similar findings followed against Spain and other countries.8Federal Register. Notice of Determination Pursuant to Section 301 – Spain’s Digital Services Tax
In June 2021, the USTR announced these tariffs and immediately suspended them to give OECD negotiators room to reach a global deal.9Office of the United States Trade Representative. USTR Announces, and Immediately Suspends, Tariffs in Section 301 Digital Services Taxes Investigations That calculation changed in early 2025.
The OECD Deal and the U.S. Withdrawal
The proposed global alternative is Pillar One of the OECD/G20 Inclusive Framework. Rather than let each country invent its own digital tax, Pillar One would create a single set of rules for reallocating taxing rights to the countries where customers actually are, in exchange for participating countries repealing their existing digital services taxes and refraining from new ones.10OECD. Reallocation of Taxing Rights to Market Jurisdictions The framework would apply to companies with global revenue above €20 billion and profitability above 10%.11OECD. Progress Report on Amount A of Pillar One Implementation depends on a Multilateral Convention that more than 140 countries have negotiated, but it has not yet opened for signature.12OECD. Multilateral Convention to Implement Amount A of Pillar One
On January 20, 2025, a presidential executive action directed the Treasury Secretary and the U.S. Permanent Representative to the OECD to notify the organization that “any commitments made by the prior administration on behalf of the United States with respect to the Global Tax Deal have no force or effect within the United States absent an act by the Congress adopting the relevant provisions.”13The White House. The Organization for Economic Co-operation and Development (OECD) Global Tax Deal In practical terms, the United States has pulled out of the Pillar One agreement.
That withdrawal removes the trade for foreign governments. The whole premise of the OECD deal was that countries would drop their unilateral digital taxes in exchange for a coordinated system, and without U.S. participation, the reason to roll them back is gone. More than 30 countries currently impose some form of digital services tax, with rates ranging from about 1.5% to 7.5% in most markets. France, the United Kingdom, and Italy have shown no signs of repeal, and Canada enacted its own digital services tax in 2024.6Congressional Research Service. Canada’s Digital Services Tax Act – Issues Facing Congress The 2021 tariff suspension was tied to good-faith OECD talks, so the suspended tariffs could be reimposed and new Section 301 investigations opened.
What This Means for U.S. Companies
American technology companies operating in countries with digital services taxes face a cost that may not be offset by the usual international tax mechanisms. A U.S. company that pays income tax to a foreign government can normally claim a foreign tax credit to avoid being taxed twice on the same income. Digital services taxes are structured differently, because they tax gross revenue rather than net income, and whether they qualify for the foreign tax credit remains an open question.
If the credit does not apply, a digital services tax is a pure additional cost with no offset against a company’s U.S. tax bill. For a firm paying a 3% tax on billions of dollars in digital advertising revenue across multiple countries, that adds up quickly. Some companies absorb the cost; others try to pass it on to advertisers through higher prices, which ultimately reach consumers.
Between the U.S. withdrawal from the OECD deal, the persistence of foreign digital taxes, and the unresolved legal status of Maryland’s law, U.S. companies are working with a patchwork of rules and no clear resolution in sight. The near-term developments to watch are further Section 301 trade actions, continued litigation over Maryland’s tax, and the possibility that other states move forward if Maryland’s law survives judicial review.