District Court Ruling Against CCIA and Netchoice Uses SCOTUS Victory Against Them

A U.S. District Court decision dismissing an industry challenge of a Maryland digital ad tax Wednesday relied in part on the U.S. Supreme Court’s ruling in Moody v. Netchoice that was issued just two days before the district court opinion was released (see 2407010053). Moreover, the cases involved many of the same parties. Plaintiffs in U.S. Chamber v. Lierman -- including CCIA and Netchoice -- didn’t say whether they would appeal, but previously they appealed two district court holdings in the case. “CCIA remains committed to ensuring that protected speech is not burdened, directly or indirectly, by governmental intrusion,” CCIA Senior Vice President Stephanie Joyce said in an email. “We will hold to that commitment as we evaluate the district court’s decision to dismiss our claim in Lierman that Maryland’s Digital Advertising Gross Revenues Tax Act impermissibly burdens online speech.”

The case concerns a Maryland law that imposes a tax on digital ads and bars companies from directly passing along the additional cost to purchasers of digital advertising through separate fees or surcharges. The U.S. Chamber of Commerce, Netchoice and CCIA challenged the law on several fronts, but after a number of district court and 4th U.S. Circuit Court of Appeals decisions knocking down other claims in the case, their remaining argument was that the “Pass-Through Prohibition” violated the First Amendment by preventing companies from freely communicating with their customers about the tax. U.S. District Court of Maryland Judge Lydia Kay Griggsby ruled that under standards for First Amendment challenges that SCOTUS established in part in the July 1 Moody v. Netchoice decision, the plaintiffs hadn’t met their burden to show that “the law’s unconstitutional applications substantially outweigh its constitutional ones.” She granted Maryland’s motion to dismiss the case and denied the plaintiffs’ motion for summary judgment.

Netchoice and CCIA praised SCOTUS’ Moody decision as a victory for First Amendment rights when it was issued. On Friday, CCIA’s Joyce cited it as a factor in the associations' decision about proceeding on the digital ad tax. “As the Supreme Court just held in the Paxton and Moody cases, online speech, including editorial decisions like curation and prioritization, are protected by the First Amendment,” Joyce said. “CCIA remains committed to ensuring that protected speech is not burdened, directly or indirectly, by governmental intrusion.” The other plaintiffs -- Netchoice and the U.S. Chamber -- didn’t comment.

Grigsby agreed with the plaintiffs' arguments that the pass-through prohibition restricts protected speech. A taxpaying entity subject to the digital tax "is not free to convey its prices for digital advertising services in any way that it pleases.” But she also said the digital ad tax has a “legitimate sweep” because Maryland can levy taxes, and the law specifies the funds go to public education. Meanwhile, the restrictions on speech the law created “are not substantial,” Grigsby said. Evidence in the case that the restriction would unconstitutionally bar company communications was “not voluminous” and the law doesn’t restrict speech when companies don’t directly pass the tax's cost to customers, she wrote. “The record before the Court and the text of the PassThrough Prohibition make clear that there are many applications of this statute that would be constitutional and would not implicate the First Amendment.”