4th Circuit Remands Md. Ad Tax Challenge to District Court

The 4th U.S. Circuit Court of Appeals sent back to district court a U.S. Chamber of Commerce challenge of Maryland’s digital ad tax. In an opinion Wednesday, the appeals court agreed with the U.S. District Court in Baltimore that the Tax Injunction Act (TIA) prevents federal courts from reviewing the tax itself but disagreed that a decision on a related pass-through ban was moot.

The district court had dismissed the challenge to the tax’s ban on passing through the tax’s costs to consumers due to a state trial court that ruled as unconstitutional the entire act establishing the tax. But the Maryland Supreme Court later overturned that decision.

The trial court’s declaratory judgment didn’t “necessarily moot this case because there was an impending appeal which could (and ultimately did) vacate the judgment, making the federal case live again,” wrote 4th Circuit Judge Henry Floyd: The challenge to the pass-through ban “is unquestionably live now that the Maryland Supreme Court has vacated the judgment that had declared the Act unconstitutional.”

The 4th Circuit disagreed with the Chamber that the appeals court should resolve the challenge itself. "The district court in the first instance should decide whether the pass-through provision restrains speech and, if so, whether it passes constitutional muster,” wrote Floyd.

The Chamber and Maryland’s attorney general office didn’t immediately comment.