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2021 law barred disclosure of tax on invoices

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Court says law violated First Amendment free speech rights

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Maryland officials not available to comment

By Jonathan Stempel

Aug 15 (Reuters) - A federal appeals court on Friday

declared unconstitutional a Maryland law prohibiting companies

that pass on the costs of the state's first-of-its-kind digital

advertising tax from telling customers why prices went up.

Reversing a lower court ruling, the 4th U.S. Circuit Court

of Appeals unanimously agreed with the Chamber of Commerce and

two other trade groups that the restriction violated members'

First Amendment free speech rights, while insulating Maryland

lawmakers from criticism and political accountability.

The offices of Maryland's Attorney General Anthony Brown and

the only defendant, state Comptroller Brooke Lierman, did not

immediately respond to requests for comment.

Aimed at larger businesses such as Amazon.com ( AMZN ), Meta

Platforms' ( META ) Facebook and Alphabet's Google,

Maryland's 2021 law taxed companies that generated at least $1

million of gross revenue from digital ad services in the state.

Maryland imposed levies on a sliding scale based on

companies' global revenue, and lawmakers said the tax could

raise $250 million annually.

The Chamber of Commerce, NetChoice and the Computer &

Communications Industry Association sued, calling the law a

punitive assault on digital rather than print advertising.

Friday's decision concerned their objection to a provision

against passing on the cost of the tax "by means of a separate

fee, surcharge, or line-item," saying it effectively forbade

businesses from shifting blame to lawmakers.

Circuit Judge Julius Richardson wrote for a three-judge

panel, however, that the provision ensured that companies would

bear economic and legal responsibility for the tax. He said

Maryland didn't justify this, and the provision was facially

unconstitutional.

"The pass-through prevents companies from describing the

tax in the one setting where the consumer is guaranteed to look:

the invoice," the judge wrote. "Keeping out of hot water with

voters is not among the interests that can justify a speech

ban."

Richardson added: "As much today as 250 years ago,

criticizing the government - for taxes or anything else - is

important discourse in a democratic society. The First Amendment

forbids Maryland to suppress it."

The Richmond, Virginia appeals court returned the case to

U.S. District Judge Lydia Kay Griggsby in Greenbelt, Maryland,

to determine appropriate remedies.

In separate statements, the trade groups welcomed the

decision.

"The Fourth Circuit was absolutely correct," said Paul

Taske, co-director of the NetChoice Litigation Center. "Maryland

tried to prevent criticism of its tax scheme, and the Fourth

Circuit recognized that tactic for what it was: censorship."

The case is Chamber of Commerce et al v. Lierman, 4th U.S.

Circuit Court of Appeals, No. 24-1727.