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Clear Channel Outdoor v. Dept. of Finance
Citation: 472 Md. 444Docket: 9/20
Court: Court of Appeals of Maryland; June 9, 2021; Maryland; State Supreme Court
Original Court Document: View Document
In Clear Channel Outdoor, Inc. v. Director, Department of Finance of Baltimore City, the Maryland Court of Appeals ruled that a local excise tax imposed on the sale of advertising space on billboards does not infringe on constitutional protections of freedom of speech under the First Amendment or Article 40 of the Maryland Declaration of Rights. The court emphasized that while freedom of speech is crucial in a democracy, the power to tax is equally essential for government functioning. The decision involved heightened scrutiny of tax laws that could discriminate against speech, particularly targeting specific viewpoints or speakers. Clear Channel Outdoor, Inc. sought a refund for taxes paid under a Baltimore City ordinance enacted in June 2013, which taxes the privilege of displaying outdoor advertising not located on the premises of the advertised goods or services. The ordinance defines "outdoor advertising display" as any display larger than 10 square feet that directs attention to a business or event not conducted on the display premises. Clear Channel argued that the ordinance was unconstitutional, claiming it could not withstand the required scrutiny regarding speech protections. However, both the Maryland Tax Court and subsequent judicial reviews upheld the city's tax, leading to the final court decision affirming the constitutionality of the ordinance. The Ordinance exclusively targets off-site billboards and excludes signs advertising businesses on the premises. It imposes an annual tax on the 'advertising host,' defined as the owner or controller of the billboard who charges for its use, with rates set at $15 per square foot for electronic displays that change images more than once daily, and $5 per square foot for other types. The tax is independent of the number, duration, or subject matter of the advertisements displayed, and advertisers are not taxed under the Ordinance. The City aims to generate revenue through this Ordinance, projecting $1 million in its first fiscal year and $1.7 million in subsequent years. It is part of a ten-year financial plan to protect arts and culture funding. The Ordinance affects 760 billboards operated by four entities, with Clear Channel owning approximately 90% and primarily displaying third-party content, while also occasionally using its own. Clear Channel has editorial control over the content it displays, prohibiting certain messages and ensuring factual accuracy for political content. Following the Ordinance's enactment, Clear Channel attempted to challenge its constitutionality in federal court, but this was dismissed for lack of jurisdiction under the Tax Injunction Act. Clear Channel then sought a tax refund in state courts on constitutional grounds, leading to ongoing litigation. Clear Channel paid taxes under protest for the 2014 and 2015 fiscal years following a federal court decision and requested a refund from the City, arguing the tax was unconstitutional under the First and Fourteenth Amendments, as well as Article 40 of the Maryland Declaration of Rights. The City denied the refund, asserting the Ordinance was constitutional as a revenue-raising measure. Clear Channel continued to pay the tax for the 2016 fiscal year and submitted another refund request, which was also rejected. Clear Channel appealed the denials to the Maryland Tax Court, again citing constitutional protections for billboard messages. The Tax Court dismissed Clear Channel's claims, emphasizing a strong presumption in favor of taxation and concluding that the excise tax was on the privilege of conducting business rather than on free speech. The Court stated that Clear Channel's billboard operations did not constitute protected speech, as it merely sold advertising space. The Tax Court found no unconstitutional targeting of speakers, noting that the tax criteria were applied uniformly to all off-premises billboards and were rational for tax classification. Clear Channel sought judicial review in the Circuit Court for Baltimore City, which upheld the Tax Court's decision. The Court of Special Appeals also affirmed the Tax Court ruling. Clear Channel subsequently petitioned for a writ of certiorari, seeking to reverse the lower court decisions, arguing the Ordinance violates constitutional free speech protections and improperly targets billboard operators with heightened scrutiny. The Tax Court's decisions are reviewed under the standards applicable to administrative agency decisions as outlined in the Maryland Administrative Procedure Act. In appeals concerning agency decisions, the review is direct, focusing on the agency's ruling rather than those of lower courts. The Tax Court's interpretation of Maryland tax law is given deference due to its role in administering and interpreting these statutes. This particular case involved an analysis of the First Amendment and Article 40 of the Maryland Declaration of Rights. The First Amendment, applicable to states via the Fourteenth Amendment, prohibits laws that abridge freedom of speech and press. Article 40 similarly protects press liberty and allows citizens to express their sentiments responsibly. Although the two provisions may be interpreted differently in some cases, their protections are generally viewed as coextensive. Therefore, arguments concerning the First Amendment are also relevant to Article 40. In determining the standard for reviewing legislation under the First Amendment, the Tax Court considered whether to apply strict scrutiny or a rational basis test. It concluded that rational basis scrutiny was appropriate, as heightened scrutiny typically applies when First Amendment rights are infringed. The rational basis test is often used in conjunction with the Equal Protection Clause, particularly when fundamental rights or suspect classifications are not involved. While Clear Channel did not explicitly invoke the Equal Protection Clause, the argument that the tax on off-site billboard advertising is discriminatory suggests its relevance. Ultimately, the Tax Court's decision to utilize a rational basis test was appropriate, and there appears to be consensus that the Ordinance meets this test as a valid revenue-raising measure within the City's taxing authority. The case hinges on whether heightened scrutiny of the First Amendment applies and if the Ordinance withstands that level of scrutiny. Billboards serve as a medium for speech with some First Amendment protection, though they possess both communicative and noncommunicative elements, the latter of which governments have a legitimate interest in regulating. Courts are tasked with balancing government regulation against First Amendment rights. Taxation is essential for government support, and there is a strong presumption favoring tax legislation. However, tax schemes that penalize or discourage speech may violate the First Amendment. The Supreme Court's case law illustrates this tension, particularly in Grosjean, where a Louisiana tax on advertising in large-circulation publications was challenged. The Court found the tax suspicious, as it targeted newspapers based solely on circulation rather than advertising volume, indicating an intent to penalize certain publishers. Similarly, in a Minnesota case, a sales and use tax on paper and ink was deemed discriminatory against larger newspapers, as it did not fulfill its intended economic function and disproportionately affected a specific subset of the press. The Court emphasized that even without malicious intent, such targeted tax measures impose a significant burden on the state to justify their actions. Maryland case law has addressed the implications of free speech provisions on the taxation of media in two significant instances. Initially, the Court evaluated a Baltimore City ordinance imposing a sales tax on advertising across various media, including newspapers and billboards. The Court later applied principles from Supreme Court precedents, particularly the Grosjean case, to determine whether excluding an advertising circular from the 'newspaper exemption' of the State sales tax infringed on First Amendment rights. In A.S. Abell Co., the Court found that the tax discriminated against newspapers and broadcasters, violating their free speech rights by imposing restrictions akin to those with a retaliatory motive. While the Court did not classify billboards as equivalent to newspapers, it concluded that the ordinance's provision concerning billboards was inseparable from the overall tax and thus struck it down. Subsequently, in Maryland Pennysaver, following the Supreme Court's Leathers decision, the Court considered an advertising circular primarily consisting of commercial ads. The Court determined that the publication did not qualify for the newspaper exemption and upheld the application of the sales tax, asserting that it was constitutional due to its broad-based nature and the predominantly commercial content of the pennysaver. Key principles derived from Supreme Court and lower court decisions emphasize the First Amendment's concern about government censorship, particularly regarding the press as a vital interpreter of governmental actions. A law perceived as a "tax on knowledge" raises First Amendment issues, but proving an infringement does not necessitate showing illicit legislative intent. Tax laws enjoy a presumption of validity, even when challenged under the First Amendment, and while taxes should not disproportionately target the press without compelling justification, a broad-based tax does not violate First Amendment rights unless it discriminates based on content or viewpoint. The analysis concludes that the Ordinance in question is constitutional and does not require heightened scrutiny. The Ordinance falls within the taxing authority of the City, properly enacted and thus presumed valid. Citing the framework established in previous cases, the court asserts that a selective media tax does not automatically trigger heightened scrutiny unless it suppresses specific ideas or viewpoints. The Tax Court found no evidence of retaliatory intent or censorship associated with the Ordinance, nor did the legislative history support such claims. Furthermore, an argument for intermediate scrutiny based on previous FCC regulations was addressed, reinforcing that the Ordinance does not impose prior restraint or censorship on the press. The Supreme Court upheld the FCC regulation using an intermediate scrutiny test, distinguishing it from heightened scrutiny due to the content-neutral nature of the regulation, which directly impacted the speech on cable stations. Unlike the case of Central Hudson Gas & Electric Corp. v. Public Service Commission, which involved direct regulation of commercial speech, the current regulation does not restrict the content of advertisements on billboards. Even if intermediate scrutiny is applied, the Ordinance would still meet these standards. The case referenced, Donnelly Advertising Corp. of Maryland v. City of Baltimore, upheld an ordinance requiring the removal of off-premises signs without violating the First or Fourteenth Amendments. Clear Channel raised concerns that the Ordinance might suppress critical messages about local officials, but there was no evidence linking these concerns to the Ordinance itself. The Ordinance does not impose restrictions on billboard size, location, content, or speaker identity. Without evidence of intent to suppress specific ideas, the Court examined criteria from Leathers that might necessitate heightened scrutiny: whether the Ordinance singles out the press, targets a small group of speakers, or discriminates based on the content of taxpayer speech. Clear Channel argued that the Ordinance targets off-site billboards as a form of press, but this argument is considered tenuous. Prior Supreme Court decisions invalidated taxes that singled out traditional media such as newspapers and broadcasters, yet the Court recognizes that First Amendment protections evolve with changing modes of expression. Clear Channel's petition raised two central questions regarding the protection of billboard operation under the First Amendment and whether the tax targets a specific platform or group of speakers deserving heightened scrutiny. The Supreme Court has established that cable television operators engage in "speech" under the First Amendment, similar to traditional media like newspapers and publishers. Billboards, while traditionally used for advertising, have evolved with digital technology to display a wider array of messages, yet they primarily function as commercial advertising vehicles rather than as newsgathering organizations. This distinction allows municipalities, such as Baltimore City, to regulate or ban billboards for aesthetic and safety reasons without violating First Amendment rights. The court has clarified that despite some similarities to the press, billboards do not equate to traditional media for First Amendment purposes. Furthermore, a tax on the press is considered discriminatory if it intentionally interferes with First Amendment activities or raises suspicions about its purpose. The precedent set in Grosjean emphasizes that taxes restricting newspaper circulation are analogous to historical taxes that limited public access to information. Overall, while billboards may occasionally resemble press functions, regulations affecting them do not necessarily target the press specifically. The tax in question draws a distinction between two types of legislation: those that single out certain media entities, such as the taxes in Grosjean and Minneapolis Star, which specifically targeted larger newspapers and penalized them through selective taxation on components like ink and paper, versus the Ordinance here that imposes a tax on all operators of off-site billboards without affecting the broader advertising landscape. The Ordinance does not interfere with First Amendment rights, nor does it seem designed to do so. To evaluate whether the Ordinance targets a small group of speakers, one must determine the appropriate reference group. Clear Channel argues that it targets a small group because it applies to 760 billboards controlled by four entities, excluding other outdoor signage and businesses. In contrast, the City argues the tax applies universally to all off-site billboards. Historical cases, such as Grosjean and Minneapolis Star, demonstrate that taxes aiming to burden a smaller group within a larger universe of similar media entities are what constitute targeting. Therefore, the principle derived from these precedents suggests that a tax targets a specific subset of speakers when it differentiates among members of related media, rather than simply applying to a specific media type. Grouping off-premises billboards with all other commercial signs for analysis is deemed over-inclusive due to the unique characteristics of billboards. Local lawmakers and courts recognize billboards as significant traffic safety hazards. A tax on a media form or group of "speakers" should not automatically be viewed as targeting a small group, as this would impose a uniformity requirement under the First Amendment, restricting legitimate legislative taxation authority. The Ordinance applies uniformly to all off-site billboards in the City that charge for advertising, without differentiation based on duration, extent, or subject matter of the speech. The limited number of taxpayers affected by the Ordinance is attributed to market conditions rather than its structure, as the City has prohibited new billboards for 20 years, reinforcing Clear Channel's market dominance. The Ordinance does not invoke heightened First Amendment scrutiny since it does not target a small group of speakers. Regarding content discrimination, the tax is not contingent on the message displayed but rather on whether Clear Channel charges for the advertisement. If Clear Channel displays its own messages without charge, no tax applies, indicating that the tax is based on commercial transactions, not content. Clear Channel's argument that the Ordinance discriminates based on content due to its application only to off-premises billboards is challenged by the Supreme Court's ruling in Reed v. Town of Gilbert, which acknowledged that while content-based restrictions can manifest in various forms, the on-premises/off-premises distinction does not trigger heightened scrutiny under the First Amendment. The sign regulation addressed in Reed was determined to be content-based, with all nine justices agreeing on the judgment but issuing four separate opinions. Of the six justices supporting the main opinion, three also concurred with Justice Alito, who identified specific types of sign regulations that are not content-based, including the distinction between on-premises and off-premises signs. Justice Kagan, in her opinion supported by two justices, warned against a broad interpretation of content-based regulations and implied that the on-premises/off-premises distinction would not invoke strict scrutiny. The Reed decision did not analyze off-premises billboards. Clear Channel's argument relied on a Sixth Circuit case involving a Tennessee law that restricted signage near public roadways while exempting on-premises signs. The Sixth Circuit deemed this law not content-neutral, as it required officials to interpret the sign's message to enforce the regulation. Other courts and commentators, however, have concluded that post-Reed, regulations differentiating between on-premises and off-premises signs do not discriminate based on content and thus do not warrant heightened scrutiny under the First Amendment. Citing various cases, including Adams Outdoor Advertising and Geft Outdoor LLC, it is noted that at least six justices maintain that such regulations are content-neutral. The Sixth Circuit acknowledged that while there could be content-neutral formulations of the on/off-premises distinction, the specific law in question did not qualify as such. The Tennessee law required officials to evaluate the "purpose" of a sign to classify it as either on-premises or off-premises, a structure not mirrored in the Ordinance at issue here. Existing case law suggests that regulations differentiating between sign types based on location may be considered content-neutral. Following the Supreme Court's decision in Reed v. Town of Gilbert, local governments retain the authority to regulate off-premise billboards. The Ordinance imposing a tax on billboard advertising falls within the city's taxing powers and is presumed constitutional under First Amendment jurisprudence. Heightened scrutiny applies only if the tax targets specific ideas, viewpoints, or discriminates based on content, which this Ordinance does not. The court concluded that the Ordinance withstands a rational basis review and does not violate the First Amendment or Maryland's Declaration of Rights. Consequently, the Tax Court's ruling to deny Clear Channel's tax refund requests was affirmed, with costs assigned to the petitioner. Prior judicial decisions affirming similar tax challenges support this conclusion. Dissenting from the Majority's view, Chief Justice John Marshall argues that Baltimore City's excise tax on outdoor advertising displays warrants heightened judicial scrutiny rather than the low threshold of rational basis review. He contends that billboards represent a constitutionally protected medium of communication, and any legislation affecting this medium invokes First Amendment free expression concerns. The Tax Court labeled the excise tax as one on the privilege of conducting business rather than on free speech, but Marshall questions the distinction between the privilege of operating a speech platform and the speech itself. He warns that taxing the privilege of maintaining a speech platform undermines Supreme Court precedents and opens the door for municipalities to impose taxes on other forms of media, such as radio stations or newspapers. Additionally, he expresses concern that the tax will ultimately burden speech providers, as the costs may be passed on to those creating the content. Marshall criticizes the Tax Court's reasoning for creating ambiguity between the business of conveying speech and the content itself, asserting that if billboards are not recognized as protected speech platforms, it could lead to regulatory limits on the messages conveyed. He underscores the danger of targeted taxes on specific mediums, which could threaten traditional forms of free expression and argues that the Ordinance cannot be deemed “generally applicable” under these circumstances. The Ordinance specifically targets "outdoor advertising displays," necessitating a higher level of judicial scrutiny due to its potential content-based distinctions that conflict with the First Amendment. It applies only to off-premises signage, raising concerns that the tax may unintentionally infringe on free speech rights. Even without the city council's intent to restrict expression, the First Amendment safeguards against both deliberate and inadvertent limitations on free speech, mandating that the tax be evaluated under heightened scrutiny. Billboards, which serve as a significant medium for diverse messaging, are subject to regulations that intertwine their physical characteristics with their communicative functions, reinforcing the need for careful legal scrutiny. The city’s zoning code recognizes this dual nature, defining billboards based on both location and communicative intent. In contrast to the Maryland Pennysaver case, where a broad retail sales tax was applied generally with minimal exemptions, the Ordinance's focus on a specific industry highlights its unique implications. Unlike the predominantly commercial content of the pennysaver, billboards convey a wide array of messages, thus significantly differing in their impact on free expression. Evaluating the constitutionality of the Ordinance necessitates consideration of billboards' significant role in the local media ecosystem, as they provide essential alternative communication channels. The economic burden imposed by the tax may limit access to this medium, potentially hindering public interest. Billboards uniquely contribute to both advertisement and free speech, facilitating a diverse range of messages, including commercial and political content. Their low cost enables various voices, including those of non-incumbents, to participate in public discourse, which is crucial for challenging established narratives. In a media landscape increasingly polarized by technology and social media, billboards serve as a vital tool for disseminating information to broad audiences without reliance on viewer choice, thereby enhancing the marketplace of ideas. This accessibility is particularly important for expressing controversial or marginalized viewpoints, ensuring that diverse perspectives can be communicated effectively. Billboards, as forms of outdoor advertising, are recognized as vehicles for communication and thus entitled to First Amendment protection. This protection arises from the inherent communicative nature of billboard content, which can influence public discourse or serve commercial purposes. Any regulation affecting billboards must consider First Amendment implications, which necessitates a judicial assessment of the interests involved against the public interest served by such regulation. Even if a regulation, such as an excise tax on outdoor advertising, is described as targeting the business privilege, it still touches on First Amendment rights due to the nature of the messaging involved. The Supreme Court has established that commercial speech falls under First Amendment protections, regardless of the advertiser's economic motivations. A tax on billboard display space raises constitutional concerns related to commercial speech, as it can impose a burden on expressive rights. The Supreme Court's evolving view on media and speech indicates that all platforms providing information and commentary should be afforded protections, recognizing the blurred lines between traditional and non-traditional media. The Court has articulated a four-part test for evaluating restrictions on commercial speech, requiring that such speech be lawful and not misleading, serve a substantial governmental interest, directly advance that interest, and be no broader than necessary. Given these factors, any tax on billboard advertising must be evaluated under intermediate scrutiny due to its incidental impact on speech. Taxing outdoor advertising display space is analogous to taxing the materials used by newspapers, as both types of taxes indirectly affect free speech by imposing additional costs on communication. Any taxation on revenue from outdoor advertising space carries implications for First Amendment rights, since such costs are likely to be passed on to clients wishing to advertise. Therefore, the burden on speech caused by the Ordinance must not exceed what is necessary to achieve the government's stated interests. Although taxation of billboards is not inherently unconstitutional, it must serve an important government interest while minimally infringing on free expression. The case should be referred back to the Tax Court for evaluation under a heightened scrutiny standard due to the First Amendment implications. Arguments against applying this standard are flawed, as they overlook the necessity of scrutinizing regulations—whether zoning or taxation—that affect billboards. Billboards, being substantial and permanent structures, are subject to regulatory oversight, which is rooted in governmental police powers and often defined in municipal zoning codes. However, these regulations also impact the communicative functions of billboards, necessitating a careful consideration of First Amendment concerns. For such regulations to be upheld, they must (i) be based on a constitutionally recognized government power, (ii) advance a significant government interest, (iii) not suppress free expression, and (iv) impose only minimal restrictions on First Amendment rights essential to achieving the government’s goals. Precedents indicate that zoning regulations frequently meet these criteria, as demonstrated by legislative concerns regarding traffic hazards posed by billboards, which represent legitimate interests unrelated to the suppression of speech. The city’s police power allows for the regulation and phase-out of billboards as part of urban renewal projects, which serve a significant government interest unrelated to suppressing free expression. If a billboard tax meets a heightened constitutional standard, it can coexist with zoning laws without being deemed absurd. The judiciary must critically assess the constitutionality of such laws concerning their impact on the First Amendment, applying a stricter scrutiny than rational review. Precedent from the Supreme Court mandates that laws affecting billboards undergo heightened scrutiny due to their specific targeting of a single class of speakers and medium. While media entities can be subjected to generally applicable economic regulations, imposing selective taxes on certain media types, such as billboards, demands greater justification. The ordinance in question is not a general tax; it exclusively targets billboards, distinguishing it from cases like Leathers v. Medlock, which involved a generally applicable sales tax. The ordinance's selective application parallels must-carry provisions reviewed under intermediate scrutiny, indicating that it should be subjected to rigorous evaluation given its specific burden on billboards as a unique medium. The Ordinance targets a specific group of constitutionally protected speakers, potentially limiting political accountability by applying solely to outdoor advertisers. This narrow focus can act as a form of censorship, imposing additional burdens that could infringe upon free speech rights. A finding of malicious intent is not necessary for constitutional concerns to arise; differential taxation that burdens First Amendment interests is problematic unless justified by a compelling state interest. The Ordinance's selective application to outdoor advertisers, particularly larger "off-premises" signs, raises significant constitutional issues, as it distinguishes among speakers based on the nature of their messages. This creates a content-based distinction that must meet strict scrutiny standards. Although the Supreme Court's decision in Metromedia allowed such distinctions in zoning laws, it emphasized the need for a higher level of scrutiny. Thus, the court should reverse the lower court's decision and require the City to justify the Ordinance under strict scrutiny standards, reinforcing the need for rigorous protection of First Amendment rights in regulatory and tax matters. The dissent emphasizes the necessity for a more stringent review of legislation affecting free speech.