4th Circuit Returns Maryland Digital Ad Tax Case to Lower Court
The pass-through provision of Maryland's digital ad tax doesn't withstand First Amendment scrutiny, the 4th U.S. Circuit Court of Appeals ruled in a Friday opinion, reversing and remanding the case to the U.S. District Court for Maryland for further deliberation (see 2411010020). "The states are free to make controversial policy," wrote Judge Julius Richardson in the unanimous opinion (docket 24-1727): "But with that freedom comes constraint."
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At issue is Maryland's tax associated with the profits a company makes from online advertising and whether the state can bar a company from telling customers if it passes on the cost of the tax. A three-judge panel, led by Richardson, agreed with industry groups that Maryland "has no reason, other than insulating themselves from criticism and political accountability, to forbid them to explain the tax to their customers."
The groups, which included the Computer & Communications Industry Association and NetChoice, welcomed the ruling and second chance at striking down the law in the lower court. The law "strikes at the heart of free speech," said Stephanie Joyce, CCIA's senior vice president and director of the CCIA Litigation Center for the Connected Economy. States can't "use their taxation authority as a lever to squelch discourse and dissent," Joyce added. Said NetChoice Litigation Center Co-Director Paul Taske, Maryland "tried to prevent criticism of its tax scheme." The 4th Circuit "recognized that tactic" as "censorship."