Roxanne Bland is Tax Notes State’s contributing editor. Before joining Tax Analysts, Bland spent 17 years with the Multistate Tax Commission, where she worked with state revenue agency representatives to draft model legislation pertaining to sales and use taxation and corporate income, analyzed and reported on proposed federal legislative initiatives affecting state taxation, worked with legislative consultants and representatives from other state organizations on international issues affecting states, and assisted member state representatives in federal lobbying efforts. Before that, she was an attorney with the Federation of Tax Administrators for over seven years.
In this installment of The SALT Box, Bland revisits litigation surrounding excise tax on billboards, as Ohio becomes the latest state to consider the issue.
On the heels of Clear Channel1 — a decision from the Maryland Court of Special Appeals upholding Baltimore City’s excise tax on billboards as not contravening the free speech protections guaranteed by the First Amendment — comes Lamar,2 in which the taxpayer contests a similar tax imposed by Cincinnati, and on the same grounds. The case is before the Ohio Supreme Court, which heard oral argument on June 16.
The facts of Clear Channel and Lamar that inform the bases of the taxpayers’ constitutional complaints are virtually identical. Cincinnati imposes an excise tax on licenses to install billboards. The tax falls only on billboard operators, which are free to pass the tax on to their customers. No other types of signage are subject to the tax. Newspapers and other media are also exempt. However, the facts of the two cases diverge with a provision Cincinnati’s law related to the tax’s imposition that prohibits billboard operators, “in any manner, directly or indirectly,”3 from advising customers of the tax, although the operator is free to pass the tax on in the form of increased rental fees. Violations of the prohibition are subject to civil and criminal penalties.4
Lamar Advantage GP Co. LLC claims that the tax infringes on its First Amendment right of free speech, and as such, the proper legal standard by which the tax should be adjudged is strict scrutiny because it singles out the press and is targeted at only a small group of taxpayers, i.e., billboard operators. As a billboard operator, Lamar argues that it qualifies as the press because in Metromedia,5 the U.S. Supreme Court held that billboards are a “medium of communication warranting First Amendment protection,” and thus, like other media, the First Amendment prohibits governments from controlling communications displayed on billboards, regardless of such signage being a paid advertisement or other form of communication sold for profit. In further support, Lamar relies heavily on the Court’s decision in Minneapolis Star6 and says that the First Amendment renders the city’s tax per se invalid because it singles out the press and targets a small group of speakers, i.e., itself and the other limited number of billboard operators in the city. Indeed, Lamar points out in this case, the tax targets the press and billboard operators, but in Minneapolis Star, the Court stated the rule in the disjunctive: A tax is invalid under the First Amendment if it targets the press or targets a small group of speakers. In either case, Lamar asserts, these two factors are all Minneapolis Star requires to find a law unconstitutional; it does not matter that a measure is otherwise content neutral. Lamar quotes the Minneapolis Star Court to drive home its point: “Differential taxation of the press, then, places such a burden on the interests protected by the First Amendment that we cannot countenance such treatment unless the state asserts a counterbalancing interest of compelling importance that it cannot achieve without differential taxation.” This, Lamar asserts, is what makes the city’s tax unconstitutional. By targeting the press and a small group of speakers, Lamar argues, the city’s tax “chills speech and burdens speech in a manner akin to outright censorship,” and the city offered no justification for its levy to satisfy a legitimate governmental interest it could not meet without imposing the tax.
At oral argument, the Ohio justices appeared skeptical of the city’s position. Marion E. Haynes III, chief counsel for Cincinnati, argued the tax is not levied on speech as displayed on a billboard, but on billboard operators. The operators, he said, are not engaged in speech when they rent out their billboards; “they are not speakers or members of the press.” As the operators admitted at trial, Haynes pointed out, “what they do is sell a product to their customers.” Thus, all that is at issue in this case is a tax on the operators’ economic activity, which does not implicate First Amendment concerns. That the pool of billboard operators in the city is limited, he explained, is a function of the city’s regulation of billboards generally; the city allows no more than 800 billboards within its jurisdiction, and the tax falls on all billboard operators equally. Haynes went on to distinguish the city’s tax from the one at issue in Minneapolis Star and other Supreme Court First Amendment jurisprudence by pointing out that in those cases, the taxes were structured in a way that made them suspect. In Minneapolis Star, he explained, the state denominated its tax on newsprint and ink as a use tax, yet the imposition was not complementary to the state’s sales tax, which made it clear that the tax targeted newspapers and further, a specific number of newspapers out of those in circulation at the time. The nature of the tax was obvious, Haynes said, and that is what made the Minnesota tax unconstitutional. In contrast, he told the court, Cincinnati’s tax is simply an excise tax on a billboard operator’s economic activity within the city.
The court questioned Haynes on why the city’s tax fell on billboard operators and not on other forms of advertising media. The justices appeared unconvinced by the city’s argument that there was a difference between a billboard operator selling advertising space on its billboard and a television or cable operator selling advertising space on its channels; and they seemed further unconvinced by the argument justifying the tax on operators with a fixed billboard but not on mobile operators whose product is essentially a billboard mounted on a vehicle. The court also noted that space sold on billboards mounted on a building were not taxed. In short, the court seemed to find that the city’s distinguishing operators of fixed, stand-alone billboards and other types of media amounted to a distinction without a difference, and the tax thus singled out a particular type of operator for taxation.7
Is There a Difference Between Clear Channel and Lamar?
While it is impossible to predict how the state supreme court will rule in Lamar, what’s striking is the focus of the court at oral argument vis-à-vis the Maryland Court of Special Appeals in Clear Channel. Although couched in terms of the First Amendment, the lengthy questioning by the Ohio court on the applicability of the tax to various forms of media indicates it may also be thinking about the impact of the 14th Amendment on its decision. There is a very strong case that in Lamar, the tax violates the equal protection clause of the 14th Amendment. This was also true in Clear Channel. Yet the Clear Channel court did not address the 14th Amendment at all, except to find that the tax had a rational basis that addressed a legitimate governmental interest. The 14th Amendment question, however, is not before the Ohio court, though perhaps it could raise the issue sua sponte.
On the First Amendment issue, the Ohio court could follow the Maryland court in finding the city’s tax does not violate the amendment on the basis that it regulates the content of or suppresses speech. That is, while the messages placed on billboards are protected by the First Amendment, the economic activity of selling billboard space is not. As the Maryland court opined, that billboards are a medium of communication does not transform a tax on the activity of selling billboard space into the regulation of speech. Even if the Ohio court is inclined to follow the Maryland court’s decision in this respect, it is difficult to see how it can get around Minneapolis Star. Suspect tax structuring aside, excise taxes being common at both the state and local levels does not negate the tax falling only on a small group of taxpayers, i.e., those who own or lease fixed, stand-alone structures upon which space is rented for customers to communicate their messages to the public, and not on any other medium, fixed or mobile, that serves the same purpose. Although the Maryland court simply brushed this issue aside, the hope is that the Ohio court will not. In the end, one has to conclude that while there is little difference between the facts of the Maryland and Ohio cases, the outcome of the Ohio case may be very different from the decision issued in Maryland.
Conclusion
The First Amendment implications of excise taxes on billboards imposed by city governments is once again before us. A Maryland court recently held that a city tax did not violate the amendment as a regulation or suppression of speech; it was merely a tax on the economic activity of selling billboard space. This issue is now before the Ohio Supreme Court, and it could follow the Maryland court with its decision; however, judging by the tenor of the oral argument, that is unlikely, as it appears the Ohio court may consider questions the Maryland court did not. Stay tuned.
FOOTNOTES
1 Clear Channel Outdoor Inc. v. Director, Department of Finance for Baltimore City, No. 2910 (Md. Ct. Spec. App. 2020).
2 Lamar Advantage GP Co. LLC v. Cincinnati, Case No. 2020-0931 (Ohio 2021).
3 CMC section 313-7(b).
4 Lamar prevailed in the lower courts on the “tax gag order,” as Lamar termed it. That provision was repealed after the state supreme court agreed to hear the case. Although the issue is now moot from the date of repeal, Lamar argues the question of damages for the tax it has already paid is still live and thus the court is not constrained from examining the issue.
5 Metromedia Inc. v. San Diego, 453 U.S. 490 (1981).
6 Minneapolis Star & Tribune Co. v. Minnesota Department of Revenue, 460 U.S. 575 (1983).
7 Though the taxpayer’s counsel attempted to address the “tax gag provision,” the court obviously considered the matter settled, as the taxpayer had prevailed at the trial and appellate court levels.
END FOOTNOTES