We live-tweeted today’s argument in Chamber of Commerce of the United States v. Lierman, the challenge to Maryland’s Digital Ad Tax. The key question in the case is whether the state can ban businesses from listing the tax separately on customers’ receipts.
The business taxpayers challenging the law argue that the state allows companies to raise their prices to pay for the taxes, but forbids them from telling customers why the prices went up. In other words, the invoice could not itemize the new tax. The lower court ruled against them, saying the taxpayers didn’t meet a facial challenge burden of proving the law is unconstitutional in all possible applications.
Our amicus curiae (“friend of the court”) brief urged the Fourth Circuit to strike down Maryland’s law preventing businesses from listing the state’s new Digital Ad Tax customer invoices. This “tax speech” ban infringes on key First Amendment rights, is not pursuant to any weighty governmental interest, and is not tailored to any relevant interest. Basically, it wants to lay customers’ blame on higher prices on companies like Google rather than let customers know that Maryland created a new tax.
The case was heard before Judge Julius Richardson, appointed in 2018 by President Trump; Judge Toby Heytens, appointed in 2021 by President Biden; and Senior Judge Henry Floyd, appointed in 2011 by President Obama. The case is a facial challenge to strike down the law in all instances, not an as-applied challenge limited to certain situations.
One issue is what level of scrutiny to apply. The highest, strict scrutiny, arguably applies because this is about core political speech about taxes. But the U.S. Chamber of Commerce, leading challengers of this law, also argued that the heightened-but-lesser standard of “commercial speech” scrutiny would still strike down Maryland law.
The Chamber emphasized that, under any heightened scrutiny, “this statute is not tailored at all towards prohibiting misleading speech.” Instead, taxpayers have a right to know where the taxes are coming from, or why an item’s price is increasing as a result of a tax. Judge Heytens asked whether “directly pass[ing] on the cost of the tax” means anything more than separately itemizing the cost, if he should read more into that. The challengers said no, and emphasized that all agreed that the companies can raise prices to pay for the taxes.
The bill itemizing the tax is the best place to speak about higher Maryland taxes, as we explained in our brief. The Court asked about this at the very close of the primary argument for the Chamber of Commerce. The lawyer for the Chamber emphasized that the location on the bill showing how much is paid is precisely the best place to show the impact of Maryland’s taxes. This is the key, we think, to this case and why even under “commercial speech” scrutiny, Maryland’s speech ban fails under 44 Liquormart, Inc. v. Rhode Island.
Maryland, in contrast, argued that the state was merely regulating the structure of the tax so that it is separate from the cost of the services. Maryland argued it can decide the “legal incidence” of who pays the tax (i.e., who writes the check). But the judges pushed back saying it doesn’t change the “economic incidence” of who pays the tax (bears the economic burden, i.e., the customers who pay higher prices).
Judge Heytens pointed out that, if the companies can raise prices, how does the statute do anything? Maryland responded: “The interest is making sure the taxpayer [i.e. the company selling digital ads] is responsible for the tax.” A judge responded: “No! That’s gibberish.” The Court further asked how anyone could read Maryland’s law in any way but “you want to prohibit the taxpayer from passing along truthful information.”
Maryland pointed out that the government can ban speech related to crimes like solicitation or murder. But the judges pointed out that here the underlying conduct (passing along the cost of the tax) is legal but “[y]ou just can’t be honest about it. If you’re honest about it, that’s bad.” One judge suggested that Maryland’s real interest is making the companies “politically responsible” for the tax, in essence making the companies look like the bad guys for raising the prices on consumers, not the government.
On rebuttal, the Chamber pointed out that Maryland’s law is focused on the biggest companies in the digital space, focused on invoices, and what can or can’t be said on those bills. This means facial relief is available, despite the recent Supreme Court decision in Moody v. Netchoice, which questioned how to apply Florida and Texas laws to a wide variety of speech and platforms.
These speech questions matter for the tax context too. The last question from the panel of judges was, if this speech ban provision is struck, is it severable from the rest of the tax or does the whole law go down? The Chamber argued that the speech ban is not severable, and therefore the court will have to strike it all down.
The case is Chamber of Commerce of the United States et al. v. Lierman (4th Cir. No. 24-1727).