When Does a Tax on Speech Become a Ban on Speech?

The First Amendment protects speech from a government ban, but does it protect it from a government targeted tax on those who facilitate the speech? Last week, attorneys for billboard advertising company Clear Channel Outdoor filed an appeal with the U.S. Supreme Court, challenging Baltimore’s annual tax on billboard owners.

The tax, $15 per square foot of electronic display and $5 per square foot for other displays, is in addition to all other business taxes and applies only to billboard owners and excludes other types of signs or public displays. Of over 100,000 signs in Baltimore, about 760 billboards are subject to the tax, meaning four billboard companies pay almost all the tax. Clear Channel Outdoor pays 90 percent of it.

In 2013, Clear Channel Outdoor challenged the tax in federal court on First Amendment grounds. Ample precedent supports the view that taxes on expression can violate freedom of speech or freedom of the press. In 1936, the U.S. Supreme Court in Grosjean v. American Press unanimously struck down Louisiana Governor Huey Long’s two percent gross receipts tax on newspapers that he designed as a punishment on those critical of his administration. In 1983, the Court in Minneapolis Star v. Minnesota Commissioner invalidated a more creative Minnesota tax, which imposed use tax on all paper and ink but exempted the first $100,000, leaving primarily newspaper publishers as the only ones subject to it. The Minnesota case involved no evidence that Minnesota deliberately targeted newspapers (only that this was the effect). In the 1991 case Leathers v. Medlock, the Court held that while governments can use classifications and distinctions in designing tax laws, a tax that targets a small group of speakers or discriminates on the basis of content “will trigger heightened scrutiny” by the judiciary.

Clear Channel argued that billboards carry speech and the tax was targeted at this speech, and requested the courts engage in this “heightened scrutiny.” Baltimore invoked the federal Tax Injunction Act (TIA), which generally prevents taxpayers from challenging state tax collection in federal court. There is an exception to TIA if the tax is imposed for some purpose other than revenue collection, and Clear Channel Outdoor argued that they were targeted because of an aversion to billboard aesthetics in part to reduce the number of billboards. Baltimore denied this, saying it was purely a revenue-raising measure, and the federal court agreed.

Clear Channel paid the tax and sued for refund in state court, again making its First Amendment argument. The Maryland Tax Court ruled for the city, arguing that billboards lack “sufficient communicative elements for the First Amendment to come into play,” and that the tax was on “a means of expression rather than the expression itself.”

Maryland’s highest court, the Court of Appeals, rejected this in March 2021, holding that billboards are protected by the First Amendment. However, they also upheld the tax, reasoning that while the tax singled out billboards, the small number of taxpayers was a result of market conditions, not the law, and the tax was not content-based. Finding none of the Leathers factors to invoke strict scrutiny, the court upheld the tax on a “rational basis” analysis that it was connected to the city’s legitimate interest in raising revenue. One judge dissented, writing that a tax applying to only “one class of speech platforms” is “singularly focused on the media or individual classes of media” and therefore deserves to be strictly scrutinized.

Hefty business taxes are nothing new for Baltimore: property taxes in the city ($2.248 per $100 of value) are double that of surrounding Baltimore County ($1.10 per $100 of value) and the national average ($1.03 per $100 of value), except for some new developments that have secured sweetheart deals. In 2008, an Institute for Justice research report catalogued three decades of haphazard eminent domain condemnations and “slum clearance” that together with the taxes destroyed any incentive for private investment in housing or unsubsidized developments in the city (or effectively disallowed it altogether). It has left Baltimore seeking to extract taxes out of a disinvestment economy. The same day the Clear Channel Outdoor appeal was filed, the U.S. Census Bureau announced that Baltimore’s population had fallen to 585,708 in 2020, a 5.7 percent drop from 2010 and a stunning 38 percent decline from its 1950 peak.

This case may have outsized importance because of pending lawsuits challenging Maryland’s new tax on digital advertising services. While that tax has several legal infirmities – among them violation of the Permanent Internet Tax Freedom Act, impermissible burdens on interstate commerce, and violation of due process – the same First Amendment arguments invoked by Clear Channel Outdoor in their case would apply here. The tax is explicitly on one type of speech (targeted advertising), with evidence that legislators openly intended the tax to punish or signal their disapproval of companies that use that model. Briefing is underway in the federal case against the Maryland tax, Chamber of Commerce v. Franchot, where Maryland is arguing that the case is not ripe and the federal courts do not have jurisdiction.

The billboard case is Clear Channel Outdoor, LLC v. Raymond, U.S. Supreme Court Docket No. 21-219.