On August 15, 2025, the U.S. Court of Appeals for the Fourth Circuit issued a published opinion in Chamber of Commerce v. Lierman, reversing a district court decision and holding that Maryland's pass-through prohibition of the state's digital advertising tax (DAT) is unconstitutional.
Background on the Maryland Digital Ad Tax
Maryland enacted the DAT in 2021 over a gubernatorial veto, becoming the first state to impose such a levy. The tax applies to companies with at least $100 million in global annual gross revenues and is imposed on gross digital advertising revenues attributable to Maryland, at graduated rates. Shortly after enactment, the legislature adopted a pass-through prohibition, which barred companies from directly passing on the cost of the tax to customers "by means of a separate fee, surcharge, or line-item" on invoices.
The Fourth Circuit's Ruling
The court held that the pass-through prohibition violated the First Amendment because it regulates speech rather than conduct. By barring companies from disclosing the tax as a separate charge while permitting them to raise prices in other ways, the provision functioned as a content-based restriction on speech aimed at insulating the state from political accountability. The opinion explained that companies forced to absorb or pass on the tax "must do so in silence—keeping customers in the dark about why prices have gone up and thereby insulating Maryland from political responsibility." The Fourth Circuit concluded the provision is unconstitutional "in all its applications" and remanded the case to the district court to determine the appropriate remedy.
Immediate Impact—Not Much
The opinion does not void the DAT or preclude the state from implementing it, as separate challenges to the validity of the tax are pending. Rather, the effect is merely to preclude the state from barring taxpayers from affirmatively advising customers that they will be bearing the burden of the DAT. Regardless of the pass-through prohibition, taxpayers subject to the DAT could always raise their prices and thereby pass the burden of the tax on to their customers. Now, however, taxpayers can explicitly tell their customers that they are doing so and thereby convey that it is the state, not the vendor, causing this discrete price increase.
Broader Implications
The ruling ends Maryland's attempt to prohibit disclosure of the DAT to customers, who may in fact bear all or a portion of the tax's burden, while leaving the tax itself intact. The overall future of Maryland's DAT remains uncertain, as separate challenges to the validity of the underlying tax are pending before the Maryland Tax Court, brought by major technology companies. The decision highlights the constitutional limits on states' ability to regulate digital-specific taxes, not only under federal tax and commerce doctrines, but also under the First Amendment when states attempt to restrict how taxpayers communicate the impact of such levies.
How We Can Help
Venable's State and Local Tax Practice Group is closely monitoring the ongoing litigation over the DAT, as well as the Comptroller's implementation and administration of the tax, and is here to help clients assess their potential exposure and evaluate compliance strategies, as the future status of Maryland's DAT leaves much uncertainty to navigate.