Keith Mack
In August 2025, a federal appeals court ruled that a Maryland law prohibiting companies from informing customers of the reasons for price increases due to the state's digital advertising tax was unconstitutional. This decision reversed a lower court ruling, with the 4th U.S. Circuit Court of Appeals finding that the law violated the First Amendment free speech rights of businesses. The Maryland law, aimed at larger companies and imposing a tax on those with significant global annual gross revenues, had sparked controversy and legal challenges. The court's decision and its implications for state tax policies and free speech rights have sparked discussions about the role of government criticism and political accountability.
| Characteristics | Values |
|---|---|
| Date | August 15, 2025 |
| Court | 4th U.S. Circuit Court of Appeals |
| Law | Maryland's digital ad tax law |
| Unconstitutional Clause | Violation of First Amendment free speech rights |
| Objection | Against passing on the cost of the tax to customers |
| Judge | Julius Richardson |
| Ruling | Censorship |
| Previous Ruling | Maryland's income tax structure is unconstitutional |
| Year | 2021 |
| Court | Maryland Court of Appeals |
| Plaintiffs | Brian and Karen Wynne |
| Basis | Double taxation |
| Affected Entities | States: North Carolina and Wisconsin; Cities: New York City, Philadelphia, Cleveland, Detroit, St. Louis, and Kansas City |
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What You'll Learn
Maryland's double taxation law
The Supreme Court's decision was based on the interpretation of the dormant Commerce Clause, with the majority opinion stating that the Maryland tax law improperly punished interstate commerce, thereby violating the United States Constitution. Specifically, Justice Samuel Alito wrote that the clause exists not only to give Congress the power to regulate commerce among the states but also to prevent states from passing laws that restrict interstate business. This ruling set a precedent for other states with similar double taxation practices, including North Carolina and Wisconsin, and cities like New York City, Detroit, and Philadelphia.
The case was originally brought forward by Maryland couple Brian and Karen Wynne, who argued that being forced to pay income tax in another state and then again in Maryland amounted to illegal double taxation. The Supreme Court agreed, ruling in a 5-4 decision that Maryland's taxation policy violated the Constitution by discriminating against interstate commerce. The ruling has significant implications for state tax policies, emphasizing the need to reward productivity and incentivize job creation.
In addition to the Supreme Court case, there is an ongoing legal battle regarding Maryland's digital ad tax law, which has also been deemed partially unconstitutional by a federal appeals court. The law, aimed at larger businesses, imposes a tax on companies that generate at least $1 million in gross revenue from digital ad services. The controversial aspect is the restriction on companies from disclosing the tax impact on pricing to their customers, which has been interpreted as a violation of free speech rights and an attempt by Maryland lawmakers to insulate themselves from criticism and political accountability.
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Violation of free speech
In 2025, a federal appeals court ruled that a Maryland law prohibiting companies from disclosing to customers the impact of the state's digital advertising tax on pricing was unconstitutional. The law, which imposed a tax on companies generating at least $1 million in gross revenue from digital ad services, was found to violate the First Amendment free speech rights of businesses.
The court agreed with the plaintiffs, including the Chamber of Commerce and trade groups, that the law restricted their ability to explain the tax to their customers. By forbidding companies from passing on the cost of the tax through separate fees or line items, the law effectively prevented businesses from shifting blame to lawmakers for any price increases. This, the court argued, insulated Maryland legislators from criticism and political accountability, thus violating the free speech rights of the affected companies.
Judge Julius Richardson, writing for a three-judge panel, highlighted the importance of criticising the government, stating that "keeping out of hot water with voters is not among the interests that can justify a speech ban." He compared the law to the Colonial-era Stamp Act, which sparked the Revolutionary War, emphasising the significance of free speech in a democratic society.
The ruling set a precedent for other states considering similar taxes on online ads, underscoring the importance of protecting free speech in the realm of taxation. The case, known as Chamber of Commerce et al v. Lierman, exposed Maryland's attempt at censorship in its tax scheme, as recognised by the Fourth Circuit Court.
Additionally, in 2015, the United States Supreme Court ruled in Comptroller v. Wynne that Maryland's personal income tax structure, which did not offer full tax credits for taxes paid to other states, was unconstitutional. This decision, authored by Justice Alito, concluded that the tax violated the dormant Commerce Clause by discriminating against interstate commerce.
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Insulating lawmakers from criticism
The Supreme Court's decision to strike down the Maryland tax law on the grounds of it being discriminatory and a violation of the Commerce Clause highlights an important aspect of constitutional law: the insulation of lawmakers from criticism. This concept refers to the idea that elected officials should be protected from excessive scrutiny and criticism for their legislative actions. In the Maryland case, the court's ruling sent a clear message that certain types of economic protectionism by states will not be tolerated. This ruling could potentially curb similar legislative actions in the future and thus insulates lawmakers from criticism for proposing or supporting such laws.
The insulation of lawmakers from criticism is a complex and sometimes controversial concept. On one hand, it is important to hold elected officials accountable for their actions and to ensure that they are responsive to the needs and concerns of their constituents. On the other hand, excessive criticism or personal attacks can deter qualified individuals from seeking public office and may hinder the law-making process. Finding a balance between these two concerns is crucial for a healthy democracy.
In the context of the Maryland tax law, insulating lawmakers from criticism can be achieved by understanding the role of judicial review and its impact on legislative behavior. When a law is struck down by the courts, it provides guidance to lawmakers on the constitutional boundaries of their legislative power. This, in turn, can shape future law-making and reduce the likelihood of similar laws being proposed. Essentially, the court's decision insulates lawmakers from potential criticism by providing clarity and setting precedents that guide legislative action.
Additionally, insulating lawmakers from criticism involves recognizing the role of institutional checks and balances. In the US system of government, the separation of powers among the executive, legislative, and judicial branches provides a system of checks and balances that prevents one branch from becoming too powerful. In the Maryland case, the judicial branch checked the power of the state legislature by striking down the tax law. This action not only insulated lawmakers from criticism for passing an unconstitutional law but also reinforced the system of checks and balances inherent in the US Constitution.
Furthermore, fostering a culture of constructive criticism and civil discourse is vital for insulating lawmakers from excessive or unfair criticism. This involves encouraging fact-based debates, respectful disagreements, and a focus on policy issues rather than personal attacks. By creating an environment where ideas and policies can be discussed and debated openly and respectfully, the quality of law-making can be improved, and lawmakers can be held accountable without deterring qualified individuals from public service.
Finally, insulating lawmakers from criticism also requires lawmakers themselves to act with integrity, transparency, and a commitment to serving the public interest. Lawmakers should strive to make informed decisions, consider a diverse range of perspectives, and engage in open and honest communication with their constituents. By conducting themselves in a manner that upholds the public's trust, lawmakers can insulate themselves from criticism and earn the respect and support of those they represent.
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Maryland's personal income tax law
In the case of Comptroller v. Wynne in 2015, the United States Supreme Court ruled that Maryland's personal income tax law, which did not offer its residents a full credit for income taxes paid to other states on income earned in those states, was unconstitutional. The Supreme Court, in a 5-4 decision, agreed with Maryland residents Brian and Karen Wynne's argument that being forced to pay income tax in another state and then again in Maryland constituted illegal double taxation.
Justice Samuel Alito, who wrote the majority opinion, stated that the Maryland tax law improperly punished interstate commerce, violating the United States Constitution's commerce clause. This clause grants Congress the power to regulate commerce among states and ensures that states do not pass laws hindering interstate business.
The Maryland personal income tax law case set a crucial precedent, highlighting the need for state tax policies that encourage productivity and job creation. It also had broader implications, with over 5,000 localities potentially impacted by the decision, including states like North Carolina and Wisconsin, and cities such as New York City and Philadelphia.
While the focus is on Maryland's personal income tax law, it is worth noting that the state has also faced legal challenges regarding its digital ad tax law. In August 2025, a federal appeals court ruled that a provision in Maryland's digital ad tax law prohibiting companies from explaining tax-related price increases to customers was unconstitutional, violating the First Amendment right to free speech.
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$32.45
Maryland's tax on digital ads
The main point of contention is the provision that prohibits companies from passing on the cost of the tax to consumers "by means of a separate fee, surcharge, or line-item." This restriction has been deemed a violation of the First Amendment right to free speech, as it prevents companies from explaining price increases to their customers and shields Maryland lawmakers from criticism and accountability. Judge Julius Richardson, in his ruling, emphasized the importance of criticizing the government, stating that "keeping out of hot water with voters is not among the interests that can justify a speech ban."
The case, known as Chamber of Commerce et al v. Lierman, has garnered attention from other states considering similar taxes on online ads. It highlights the ongoing debate between states' taxation powers and companies' constitutional rights, with Maryland's law being the first of its kind to target digital ad revenue specifically. While Maryland argued that the provision ensured companies bore responsibility for the tax, the court's decision underscores the precedence of free speech and the need for transparent discourse in a democratic society.
The Maryland tax on digital ads has set a precedent for other states and has brought to light the complexities of regulating digital advertising and taxing tech companies. The case also underscores the ongoing struggle between states seeking to increase tax revenue and tech giants pushing back against what they perceive as censorship and a violation of their constitutional rights. As the legal battle unfolds, it remains to be seen whether Maryland will amend the law to address the court's concerns or if other states will follow suit with their versions of digital ad taxation.
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Frequently asked questions
The Maryland tax law imposes a tax on companies based on their global annual gross revenues. The tax rate ranges from 2.5% to 10% for businesses making between $100 million and $15 billion or more in global gross annual revenue.
The law was considered unconstitutional because it violated the free speech rights of companies by prohibiting them from disclosing the cost of the tax to their customers.
The Fourth Circuit Court of Appeals declared that the Maryland tax law was unconstitutional, agreeing with the plaintiffs that the law prevented criticism of the tax scheme and amounted to censorship.
The decision sets a precedent for other states considering similar taxes on online ads. It also highlights the importance of reform in heavily tax-burdened states and the need for state tax policies that incentivize job creation.
Yes, in 2015, the United States Supreme Court ruled that Maryland's personal income tax law, which did not offer full credit for income taxes paid to other states, was unconstitutional. This ruling also cited a violation of the dormant Commerce Clause and set a precedent for "double taxation" scenarios across the nation.
