Tax insight

Fourth Circuit finds Maryland’s pass‑through prohibition in digital advertising tax unconstitutional

Insight
5 minute read
August 22, 2025

What happened?

The US Court of Appeals for the Fourth Circuit reversed a US District Court decision on August 15, 2025, holding that Maryland’s “pass-through” provision in its digital advertising tax (DAT) statute barring directly passing the tax on to customers by a “separate fee, surcharge, or line-item” violates the First Amendment of the US Constitution. The Court concluded that the statute regulates speech and fails heightened scrutiny, remanding the decision to the district court for an appropriate remedy.

The Court decided only the First Amendment dispute about how the digital advertising tax cost may be communicated and did not address other challenges (e.g., under the Internet Tax Freedom Act and Commerce Clause) to the tax structure. These issues were rejected earlier by the Court as barred under the Tax Injunction Act.

Chamber of Commerce of the United States; NetChoice; CCIA v. Lierman, US Court of Appeals Fourth Circuit, No. 24-1727 (8/15/25)

Why is it relevant?

The Fourth Circuit’s decision protects the ability to itemize and explain tax-driven price changes on invoices, order forms, and customer communications. The Court stressed that the state may not silence entities informing customers that a price increase reflects a Maryland tax.

Actions to consider

Companies should review Maryland invoices and customer communications pending the ultimate resolution of this issue. Although the pass-through provision was held to be facially unconstitutional, the scope of the remedy will be determined on remand. The Maryland Comptroller has not yet commented on how it will address the court’s decision in the interim.