Appeals Court Strikes Down Part of Maryland Digital Advertising Tax

A lower court previously held the state law did not violate the First Amendment.

The Maryland State Capitol Building in Annapolis, Md., in a file image. Jim Watson/AFP via Getty Images

A federal appeals court struck down a Maryland law forbidding companies from listing a state tax on digital advertising on customers’ receipts.

The unanimous tax-transparency ruling in U.S. Chamber of Commerce v. Lierman was issued on Aug. 15 by a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit. The defendant, Brooke Lierman, is Maryland’s comptroller.

The tax targets large companies such as Amazon.com, Meta, and Alphabet. The state imposes levies on a sliding scale based on the businesses’ global revenue. Lawmakers previously said the tax could raise $250 million per year. The U.S. Chamber of Commerce, NetChoice, and the Computer and Communications Industry Association filed suit, alleging that the law was an assault on digital advertising.

A federal district court rejected the challengers’ argument that the law violated the companies’ First Amendment free speech rights.

The 2021 Maryland law provides that “companies that make money advertising on the internet must not only pay the tax but avoid telling their customers how it affects pricing: No line items, no surcharges, no fees,” Circuit Judge Julius Richardson wrote in the panel’s opinion.

This means that if companies opt to pass on the cost of the tax to their customers, they are not allowed to advise customers why prices have risen, which means Maryland is insulated from political accountability, the opinion said. The state law also forbids a company that receives gross revenues from digital advertising services in the state from directly passing on the costs of the tax to a customer.

Describing the tax as “unusual,” the opinion said it applies solely to companies in a single business sector and only to those that generate a minimum of $100 million in global annual gross revenues.

Noting that “complaining about taxes remains a grand American political tradition,” the opinion said several trade associations sued over the law, alleging that it violates their First Amendment right to free speech.

The law “prevents companies from describing the tax in the one setting where the consumer is guaranteed to look: the invoice,” the opinion said. “Keeping out of hot water with voters is not among the interests that can justify a speech ban.”

“Criticizing the government—for taxes or anything else—is important discourse in a democratic society. The First Amendment forbids Maryland to suppress it,” the opinion said.

Meanwhile, several state and federal lawsuits challenging the tax under the federal Internet Tax Freedom Act, as well as the Constitution’s commerce clause, due process clause, and First Amendment, are moving forward, Joe Bishop-Henchman and Lindsey Carpenter of the National Taxpayers Union Foundation said in a statement in March.

Other states have considered instituting a tax similar to Maryland’s, but none have done so.

Maryland has collected about $90 million per year from the tax, falling short of the state’s expectations. If the lawsuits against the tax succeed, the money will have to be refunded.

The foundation filed a friend-of-the-court brief in November 2024 in U.S. Chamber of Commerce v. Lierman. The document urged the Fourth Circuit to invalidate the tax, saying “tax speech is quintessentially American political speech subject to robust First Amendment protections.”

Maryland could still appeal the new ruling to the U.S. Supreme Court.

Barbara Sauers, a spokesperson for Lierman, said the comptroller’s office had no comment on the Fourth Circuit’s ruling.

The Epoch Times contacted the Chamber of Commerce for comment but received no reply by publication time.

Reuters contributed to this report.