Fourth Circuit Strikes Down Maryland DAT “Pass Through” Provision on First Amendment Grounds

On August 15, 2025, the U.S. Court of Appeals for the Fourth Circuit issued a significant ruling on Maryland’s digital advertising tax (DAT).

The Court reversed an earlier U.S. District Court decision and held that Maryland’s “pass through” provision, which barred companies from directly passing the cost of the tax on to customers as a separate fee, surcharge, or line item, violates the First Amendment of the U.S. Constitution.

The Court concluded that the provision improperly regulates commercial speech and fails to meet heightened scrutiny standards. The case was remanded to the district court to determine an appropriate remedy.

 Key Takeaways from the Ruling

• Narrow focus: The Fourth Circuit addressed only the First Amendment issue concerning how digital advertising tax costs can be communicated to customers.
• Pass through ban overturned: The provision prohibiting companies from itemizing or disclosing the tax directly to customers is no longer enforceable.
• Other challenges remain unresolved: The Court did not revisit arguments brought under the Internet Tax Freedom Act or the Commerce Clause. Those claims remain barred under the Tax Injunction Act.
• Next steps: The ruling remands the case to the lower court, leaving the details of the remedy to be determined.

What This Means for Businesses

While the digital advertising tax itself remains in place, businesses now have greater flexibility in how they communicate the cost of the tax to customers. Companies subject to Maryland’s DAT may once again consider using separate line items, surcharges, or other direct disclosures in their billing practices.

It is important to note that this ruling does not resolve broader questions about the legality of Maryland’s DAT under federal statutes or constitutional provisions. These issues may be revisited in future litigation or legislative changes.

How GSG Can Help

Navigating state level digital tax policy remains complex, especially as Maryland continues to be a testing ground for new digital taxation strategies. Please contact GSG today if you have questions about how this ruling will impact your business.