Tax and Compliance Updates: Maryland's Digital Ad Tax, Global Hiring Risks, IRS Data Sharing, and FBAR Penalties
Not every significant legal or tax development arrives with a headline. Recent court decisions, enforcement actions, and regulatory disputes highlight how quickly the landscape can shift for businesses, taxpayers, and tax professionals. Here are four developments worth watching.
Maryland Tax Court Finds for Tech Companies in Digital Ad Tax Challenge
Maryland was ordered to refund tax payments to Apple, Google, and Peacock TV after the Maryland Tax Court struck down its digital advertising tax, finding that Maryland violated the U.S. Constitution and the federal Internet Tax Freedom Act (ITFA). The decision comes as other states are adopting versions of the tax. (Apple Inc. v. Comptroller of Maryland, 23-DA-OO-0456, 8/14/2026; Google LLC v. Comptroller of Maryland, 23-DA-OO-0649, 8/14/2026; Peacock TV, LLC v. Comptroller of Maryland, 23-DA-OO-0654, 8/14/2026).
The Tax: Adopted in 2021, Maryland's Digital Advertising Gross Revenues Tax applies to taxpayers with at least $100 million in annual gross revenue globally. It also requires at least $1 million in annual Maryland digital-advertising revenue. There are four applicable tax rates based on global revenue, ranging from 2.5% for taxpayers with $100 million to $1 billion in global revenue to 10% for taxpayers with over $15 billion in global revenue.
The Decision: The Maryland Tax Court ruled that the tax violated ITFA, the dormant Commerce Clause, and the Fourteenth Amendment's Due Process Clause and granted the petitioners' motions for summary judgment. The court said the Commerce Clause violation resulted from the tiered rate structure, which is based on a taxpayer's global revenues. Accordingly, it "does not reasonably reflect the in-state component of the digital advertising activity being taxed . . . [and therefore is] . . . not fairly apportioned and interferes with interstate commerce." Further, the tax "discriminates against more globally robust companies in interstate commerce to the advantage of the Maryland tax collectors." The court also found a violation of the Due Process Clause because of the absence of a "rational relationship between the income attributed to the State and the intrastate values of the enterprise."
Implications: The Maryland Senate says that the purpose of the act was to modernize the state tax code, including by having "large digital advertising companies contribut[ing] alongside other businesses operating in [the] state." Other states, including Illinois and Utah, have begun to follow Maryland's approach, while keeping the prospect of ITFA-based challenges in mind. Maryland says it expects the legal process to continue. For businesses operating across state lines, the evolving state tax landscape is another reason to keep compliance under active review. An interesting question is what this portends for the future of internet services.
Global Hiring Expands as Payroll Compliance Challenges Abound
Employers of all sizes are expanding hiring across borders, and worker characterization, payment, and filing compliance remain rooted in local law. On August 4, 2026, DOJ announced a $3.2 million settlement with OpenAI and subsidiary Statsig concerning the permanent labor certification (PERM) process. While denying liability, the companies agreed to pay $1.2 million in civil penalties and establish a $2 million back-pay fund. The case highlights the need for employers to align their immigration, recruitment, and employment compliance processes.
Employers are increasingly looking to established talent markets around the world for highly specialized skills, particularly in software engineering and AI-related positions. Payroll tax compliance obligations may include withholding requirements, social security contributions, statutory benefits, employment contract requirements, working-time rules, immigration obligations, employee-data restrictions, and termination protections. In some cases, a worker's activities can also create registration obligations or corporate tax exposure for the employer.
Hence, where the work is performed matters, and decisions about hiring abroad should take the related costs of compliance into consideration. As we explored in a recent blog on the legal risks of global hiring, what looks like a straightforward contractor arrangement can sometimes create obligations businesses never anticipated. Questions to ask before hiring in a new country include: the employment or engagement structure; necessary registrations, approvals, or immigration permissions; applicable employment and payroll obligations; whether the role creates tax or permanent-establishment concerns; and who bears responsibility for ongoing compliance.
DOJ Asks First Circuit to Lift Block on IRS-ICE Data Sharing
DOJ is asking the First Circuit to lift the block on IRS-ICE data sharing, arguing that the disclosure policy is authorized by law and that the parties opposing it lack standing. See Community Economic Development Center of Southeastern Massachusetts v. Bessent, No. 26-1329, reply brief filed 8/17/2026.
DOJ contends that the lead plaintiff, the Community Economic Development Center of Southeastern Massachusetts (CEDC), has not shown a direct injury. DOJ calls CEDC's claim of lost revenue from fewer tax filings unproven, characterizes any effect on its tax-assistance services as indirect, and argues that there was no concrete harm. DOJ further argues that the coalition lacks associational standing because its members face no imminent harm given that the Government's Memorandum of Understanding (MOU) only covers individuals already "under final orders to remove them from the United States."
Hence, according to DOJ, the data sharing is authorized by IRC § 6103. Because the statute says the IRS "shall disclose" the information once a valid request is received, the government argues that sharing addresses with ICE is mandatory and requires no court order.
The lawsuit was brought by four community organizations providing legal, tax, and related services to immigrant communities. An amicus brief argues that the Department of Homeland Security intends to use the data to expand its program of civil immigration fines, contending that the agency has already assessed more than $84 billion in penalties against over 100,000 noncitizens, often without individualized findings of willfulness. This case intersects directly with the growing overlap between employment tax enforcement and immigration oversight that employers should be monitoring.
Court Rejects Request to Void $19.6M FBAR Penalty Over Jury Waiver
Schwarzbaum was found to have willfully failed to report his foreign bank accounts for tax years 2007, 2008, and 2009. After years of litigation, Schwarzbaum moved in December 2025 to set aside that judgment based on the U.S. Supreme Court's decision in SEC v. Jarkesy. There, the Court held that the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties for securities fraud and that the "public rights" exception did not permit the agency to adjudicate those claims in-house.
Schwarzbaum contended that the same reasoning applies to the FBAR penalties that the IRS assesses administratively, rendering the judgment against him void. The court concluded that Schwarzbaum waived any right to a jury trial by failing to make a timely demand. Under Rule 38, a party must demand a jury trial no later than 14 days after the last pleading is served. According to the court, the "[D]efendant waived any right to a jury trial because, pursuant to Rule 38, it was not timely raised." That waiver, the court added, foreclosed relief under both Rule 60(b)(4) and Rule 60(b)(6), citing the Supreme Court's holding that "Rule 60(b)(4) does not provide a license for litigants to sleep on their rights." See United States v. Schwarzbaum, 127 F.4th 259 (11th Cir. 2025), United States v. Schwarzbaum, No. 18-81147-CIV-BLOOM/Reinhart (S.D. Fla. 2026) and SEC v. Jarkesy, 603 U.S. 109 (2024).
The case is a reminder that procedural decisions, including how and when to preserve legal rights, can be just as consequential as the underlying tax controversy itself. For taxpayers with foreign account reporting obligations, early legal involvement remains critical
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Frequently Asked Questions
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Maryland's Digital Advertising Gross Revenues Tax, adopted in 2021, applied to companies with at least $100 million in global revenue and $1 million in Maryland digital advertising revenue. In August 2026, the Maryland Tax Court struck it down as unconstitutional, finding it violated the Commerce Clause, Due Process Clause, and the Internet Tax Freedom Act.
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Yes. Illinois and Utah have adopted similar approaches. However, the Maryland ruling raises significant constitutional questions that may affect how those taxes hold up if challenged.
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Hiring workers in other countries can create withholding requirements, social security contributions, employment contract obligations, immigration considerations, and in some cases, corporate tax exposure. Where the work is performed determines which rules apply, not where the employer is located.
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The DOJ is seeking to allow the IRS to share taxpayer address information with Immigration and Customs Enforcement under IRC § 6103. Community organizations have challenged the policy, arguing it discourages immigrant communities from filing tax returns. The case is currently before the First Circuit.
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The court upheld a $19.6 million FBAR penalty against a taxpayer who willfully failed to report foreign bank accounts. His attempt to void the judgment based on the Supreme Court's Jarkesy decision was rejected because he failed to timely demand a jury trial, a procedural misstep that proved costly.
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It reinforces that procedural decisions, including when and how to assert legal rights, can be just as important as the substance of the case itself. For anyone facing FBAR filing issues or penalties, early involvement from an experienced tax attorney is critical.