Federal Appeals Court Rules Maryland's Digital Ad Tax 'Pass-Through' Ban Violates First Amendment

A federal appeals court has declared a key provision of Maryland's pioneering digital advertising tax unconstitutional, asserting that it infringes upon companies' First Amendment right to free speech. The U.S. Court of Appeals for the Fourth Circuit ruled on August 15, 2025, that the state's ban on businesses itemizing the tax on customer bills amounted to censorship, preventing them from communicating pricing impacts to consumers. This decision stems from a lawsuit filed by prominent business and tech trade associations challenging the 2021 law.

Maryland's Digital Advertising Gross Revenues Tax Act, the first of its kind in the nation, levies taxes on large technology companies generating over $100 million in global annual gross revenues from digital advertising services within the state. Enacted in 2021, the tax was projected to raise approximately $250 million annually, earmarked to fund the "Blueprint for Maryland's Future Fund," a comprehensive K-12 education reform initiative. The law applies a graduated tax rate ranging from 2.5% to 10% based on a company's global revenue.

Central to the legal challenge was the tax's "pass-through" provision, which explicitly prohibited companies from directly listing the tax as a separate fee, surcharge, or line-item on invoices. Critics argued this provision was designed to shield Maryland lawmakers from public backlash by obscuring the tax's impact on consumer prices. The U.S. Chamber of Commerce, NetChoice, and the Computer & Communications Industry Association (CCIA) contended that this restriction unlawfully stifled commercial speech.

The three-judge panel, led by Judge Julius Richardson, found that the provision was a content-based restriction on speech, failing to withstand First Amendment scrutiny. Judge Richardson invoked historical parallels, stating, “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 court emphasized that Maryland's desire to avoid political accountability did not justify censoring speech, a sentiment echoed by the non-profit organization FIRE, which commented, > "The state’s desire to avoid political accountability doesn’t justify censoring speech."

Trade groups lauded the ruling as a victory for free expression and transparency. Paul Taske, co-director of the NetChoice Litigation Center, stated, “Maryland tried to prevent criticism of its tax scheme, and the Fourth Circuit recognized that tactic for what it was: censorship.” Jennifer Dickey of the U.S. Chamber of Commerce added that the decision affirms businesses' right to inform customers about taxes affecting their prices. The case is being closely watched by other states considering similar digital advertising taxes.

The unanimous decision reverses a previous district court ruling and remands the case back to the U.S. District Court for Maryland to determine an appropriate remedy. While this specific provision has been struck down, the broader Maryland digital advertising tax faces ongoing challenges in other legal venues, including the Maryland Tax Court, on different grounds such as the federal Internet Tax Freedom Act.