The “Pass-Through Speech” Doctrine: Fourth Circuit Invalidates Maryland’s Digital-Advertising Tax Gag Clause

Introduction

Chamber of Commerce of the United States v. Brooke Lierman is the latest flash-point in the national contest between aggressive state taxation and the First Amendment. When Maryland adopted the country’s first Digital Advertising Gross Revenues Tax (DAGRT), it appended an unusual “pass-through provision,” forbidding covered companies from itemising, surcharging, or separately listing the tax on customer invoices. Three national trade associations—the U.S. Chamber of Commerce, NetChoice, and CCIA—sued Maryland’s Comptroller (Brooke Lierman), asserting that the provision was a content-based restraint aimed at muting criticism of the tax. After a jurisdictional detour, the U.S. Court of Appeals for the Fourth Circuit has now (1) declared the pass-through provision facially unconstitutional under the First Amendment and (2) articulated important guidance on remedies in constitutional litigation.

Key Issues

• Does Maryland’s ban on “separate fee, surcharge, or line-item” disclosures regulate speech or merely economic conduct?
• If it regulates speech, is the restriction content-based and therefore presumptively invalid?
• What level of scrutiny—strict, intermediate, or something else—applies to a forced-silence rule that touches both commercial pricing and political commentary?
• What remedy is proper once a statute is struck down in a facial First-Amendment challenge?

Summary of the Judgment

Writing for a unanimous panel (Judges Richardson, Heytens, and Floyd), Judge Richardson held:

1. The “pass-through provision” (Md. Code, Tax-Gen. § 7.5-102(c)) regulates speech, not merely bookkeeping.
2. Because the provision targets specific content (i.e., disclosures that attribute higher prices to Maryland’s tax), it is subject to heightened First-Amendment scrutiny.
3. The State’s asserted interests—maintaining the legal and economic incidence of the tax—are not advanced by the speech ban, rendering the law fatally under-inclusive even under intermediate (Central Hudson) scrutiny.
4. The provision therefore lacks any constitutional applications and is facially invalid.
5. The panel reversed and remanded for the district court to fashion an appropriate, plaintiff-specific equitable remedy, mindful of the Supreme Court’s recent limitation on universal injunctions (Trump v. CASA, Inc., 2025).

Analysis

Precedents Cited and Their Influence

• M’Culloch v. Maryland, 17 U.S. 316 (1819) – Quoted for “the power to tax involves the power to destroy,” framing the historical tension between taxation and liberty.
• Expressions Hair Design v. Schneiderman, 581 U.S. 37 (2017) – Established that a pricing display rule is speech. The Fourth Circuit relies heavily on this to classify Maryland’s ban as a speech regulation.
• BellSouth Telecommunications, Inc. v. Farris, 542 F.3d 499 (6th Cir. 2008) – The only other federal appellate decision on a similar surcharge-disclosure ban; the Fourth Circuit adopts BellSouth’s reasoning that such bans are content-based.
• Central Hudson Gas & Electric Corp. v. PSC, 447 U.S. 557 (1980) – Provides the four-part intermediate scrutiny test for commercial-speech restrictions. The court concludes Maryland fails prongs 3 and 4 (direct advancement and narrow tailoring).
• Reed v. Town of Gilbert, 576 U.S. 155 (2015) – Cited for the principle that content-based laws are presumptively unconstitutional.
• Sorrell v. IMS Health Inc., 564 U.S. 552 (2011) – Used to assign the burden of justification to the State once a content-based, commercial-speech restriction is shown.
• Trump v. CASA, Inc., 145 S. Ct. 2540 (2025) – Recent Supreme Court guidance limiting federal courts’ use of universal injunctions; forms the basis for remand on remedy.

Legal Reasoning in Depth

1. Statutory Construction
   • The court applies Maryland’s interpretive rules: plain text + context. The modifier “separate fee, surcharge, or line-item” indicates outward-facing communications, not internal accounting.
   • Thus, the provision only prohibits a specific manner of communicating the tax to customers.
2. Speech vs. Conduct Dichotomy
   • Because companies are free to recoup the tax through higher aggregate prices, the only regulated activity is how they describe that price. That is quintessential speech.
   • Kentucky’s two-prong statute in BellSouth is contrasted; Maryland lacks any separate conduct prohibition.
3. Content-Based Nature
   • The statute singles out speech that “attributes cost increases to the DAGRT,” a classic content-based yardstick.
   • Under Reed, such laws are presumptively invalid.
4. Level of Scrutiny
   • Although the panel doubts the speech is “purely commercial,” it assumes without deciding that intermediate scrutiny applies—and still finds the statute wanting.
5. Failure of the Central Hudson Test
   • Substantial Interest: Maryland claims an interest in preventing economic or legal incidence-shifting.
   • Direct Advancement: The ban does not prevent either form of shifting; businesses may embed the tax silently.
   • Narrow Tailoring: The provision is “totally under-inclusive.” Less speech-restrictive alternatives (e.g., mandated disclaimers) are obvious and untried.
6. Facial Invalidation
   • Because the statute lacks any constitutional application, the facial challenge succeeds (citing Americans for Prosperity Foundation v. Bonta, 2021).
7. Remedial Questions
   • The panel remands for tailored relief, expressly cautioning against over-broad universal injunctions.

Impact of the Decision

• First Amendment Jurisprudence
  Introduces a clear circuit-level rule that state “gag clauses” attached to tax statutes are content-based and rarely survive Central Hudson, let alone strict scrutiny.
• State Tax Innovation
  State legislatures nationwide experimenting with digital-service or carbon taxes may not forbid line-item disclosures to shield themselves from political backlash.
• Commercial Speech Doctrine
  The opinion blurs the artificial wall between “commercial” and “political” expression when taxes are involved, signaling heightened protection for price-related critiques of government policy.
• Equitable Remedies
  By invoking Trump v. CASA, the Fourth Circuit joins the parade of appellate courts limiting universal injunctions, shifting remedial debates back to district courts.
• Inter-Circuit Tension
  No split exists—the Sixth and Fourth Circuits now align—but the specificity of the holding invites Supreme Court clarification, especially if another circuit upholds a similar gag clause.

Complex Concepts Simplified

• Content-Based Restriction: A law that depends on the topic or message of the speech for its application. Here, only speech that identifies a tax cost is banned.
• Commercial vs. Political Speech: Commercial speech proposes a transaction; political speech discusses government policy. A single utterance (e.g., “Your price includes Maryland’s unfair tax”) can contain both.
• Legal vs. Economic Incidence:
  • Legal incidence = who the statute says owes the tax to the state.
  • Economic incidence = who actually bears the cost after market adjustments.
  • Maryland’s customers never owe the tax to the State, so legal incidence never shifts.
• Facial Challenge: An attack on a statute in all its applications, not just as applied to the plaintiff. Succeeds if the law has no constitutional sweep.
• Universal Injunction: Court order barring a law’s enforcement against anyone, including non-parties. Post-CASA, federal courts must tailor relief to the parties before them.

Conclusion

Chamber of Commerce v. Lierman crystallises a powerful new precedent: States may not conceal the economic realities of their taxes by criminalising truthful price disclosures. The decision reinforces the primacy of political discourse about taxation, revives a historical skepticism toward governmental manipulation of price information, and reinforces limits on remedial authority after a successful constitutional challenge. As legislatures continue to devise novel levies—whether on data, carbon, or AI output—the Fourth Circuit’s “pass-through speech” doctrine will loom large: transparency trumps silence when the State itself is the object of public debate.