Clear Channel Outdoor, Inc. v. Dir., Dep't of Fin. of Balt. City

• Decision Date: 15 March 2021
• Docket Number: No. 9, Sept. Term, 2020,9, Sept. Term, 2020
• Citation: 472 Md. 444,247 A.3d 740
• Parties: CLEAR CHANNEL OUTDOOR, INC. v. DIRECTOR, DEPARTMENT OF FINANCE OF BALTIMORE CITY
• Court: Court of Special Appeals of Maryland

472 Md. 444

247 A.3d 740

CLEAR CHANNEL OUTDOOR, INC.

v.DIRECTOR, DEPARTMENT OF FINANCE OF BALTIMORE CITY

No. 9, Sept. Term, 2020

Court of Appeals of Maryland.

March 15, 2021

Argued by Virginia A. Seitz (Gordon D. Todd and Jacquelyn E. Fradette, Sidley Austin LLP, Washington, DC; Benjamin Rosenberg and Jamar R. Brown, Rosenberg Martin Greenberg LLP, Baltimore, MD), on brief, for Petitioner.

Argued by Rachel Simmonsen, Co-Director Appellate Practice Group (Michael Redmond, Co-Director, Appellate Practice Group, Steven J. Potter, Chief Solicitor, Litigation and Dana P. Moore, Acting City Solicitor, Baltimore City Department of Law, Baltimore, MD), on brief, for Respondent.

Amicus Curiae Outdoor Advertising Association of America in Support of Petitioner, Clear Channel Outdoor, Inc: Rachael Harris, Esquire, Squire Patton Boggs (US) LLP, 2550 M Street, NW, Washington, DC 20037, Benjamin C. Glassman, Esquire, Squire Patton Boggs (US) LLP, 201 E. Fourth Street, Suite 1900, Cincinnati, OH 45202.

Argued before: Barbera, C.J.; McDonald, Watts, Hotten, Getty, Booth and Biran, JJ.

McDonald, J.

The power to tax is a necessary and essential power of government. Freedom of speech is a necessary and essential element of a democracy. Under the constitutional provisions that protect freedom of speech and of the press, differential taxation of those who operate platforms for speech is "constitutionally suspect when it threatens to suppress the expression of particular ideas or viewpoints."¹ Those constitutional provisions require "heightened scrutiny" of tax laws that "single out the press," that "target a small group of speakers," or that "discriminate on the basis of the content of taxpayer speech."² This case requires us to apply that test to a local tax on billboard operators.

A Baltimore City ordinance imposes a tax on the privilege of selling advertising on billboards that are not located on the premises where the goods or services being advertised are offered or sold. Petitioner Clear Channel Outdoor, Inc. ("Clear Channel"), which is in the business of selling advertising on its billboards in the City, sought a refund from the Respondent City Director of Finance of the taxes that it has paid pursuant to that ordinance. Clear Channel asserted that the ordinance is unconstitutional because a tax related to the sale of advertising on its billboards cannot survive the heightened scrutiny that is applied under the constitutional provisions that protect freedom of speech and of the press. The City denied the request for a refund and Clear Channel initiated this litigation by pursuing an administrative appeal of that decision in the Maryland Tax Court.

The Tax Court was not persuaded by Clear Channel's constitutional arguments and upheld the City's rejection of the refund request. On judicial review of the Tax Court decision, the Circuit Court for Baltimore City and the Court of Special Appeals reached the same conclusion. So do we.

IBackground

A. Baltimore City Enacts a Billboard Tax

1. The Ordinance

In June 2013, the Baltimore City Council enacted an ordinance that imposed an excise tax "on the privilege of exhibiting outdoor advertising displays in the City." Ordinance 13-139 (June 20, 2013), codified as amended at Baltimore City Code, Article 28 (Taxes), § 29-1 et seq. (2020) ("the Ordinance").³ The Ordinance defined an "outdoor advertising display" as:

[A]n outdoor display of a 10 square foot or larger image or message that directs attention to a business, commodity, service, event, or other activity that is: (i) sold, offered, or conducted somewhere other than on the premises on which the display is made; and (ii) sold, offered, or conducted on the premises only incidentally if at all.

§ 29-1(d). The signs containing such displays are commonly referred to as billboards. However, as the definition indicates, the Ordinance does not encompass a sign that advertises a business or other activity on the premises where the sign is located – i.e ., the Ordinance applies only to off-site billboards.

The Ordinance levies the tax on the "advertising host" – defined as a person who owns or controls the billboard and charges for its use as an outdoor advertising display. §§ 29-1(b), 29-3.⁴ The tax is assessed annually based on the size and type of display: $15 per square foot for an electronic display that changes images more than once a day⁵ and $5 per square foot for any other display. § 29-3. The tax does not depend on the number of ads, the duration of an ad, or the subject matter of an ad. The advertiser who purchases an ad to be displayed on a billboard is not taxed under the Ordinance.

According to the City, the sole purpose of the Ordinance is to generate revenue. At the time of its passage, the City's Bureau of Budget and Management Research estimated that the Ordinance would generate $1 million in tax revenue for the 2014 fiscal year and $1.7 million for each fiscal year thereafter. See Memorandum from the Bureau of Budget & Management Research to the President and Members of the Baltimore City Council (April 25, 2013), available at https://perma.cc/J7T9-KH6T. The Ordinance is part of the City's Change to Grow Ten-Year Financial Plan and, according to the Bureau, was "included in the plan to help protect arts and culture funding from further cuts." Id.

2. Billboards in Baltimore City

It is undisputed that the Ordinance affects 760 signs operated by four entities, including Clear Channel. It also appears to be undisputed that Clear Channel owns the vast majority of the affected billboards, which account for approximately 90% of the tax revenue generated by the Ordinance. The highly concentrated billboard market in the City may be due, at least in part, to the fact that the City banned the construction of new billboards in March 2000.⁶

While Clear Channel primarily displays content supplied by third parties who pay for the use of its billboards, it also occasionally displays its own content. Although the billboards are largely devoted to commercial advertising, like other advertising platforms, some of the billboards also on occasion carry messages concerning sports and breaking news, as well as political messages and public service announcements, sometimes without charge. Like other advertising platforms, Clear Channel decides what it will allow to appear on its billboards as it allocates the limited space available. Testimony and exhibits presented in the Tax Court hearing touched upon the editorial discretion exercised by Clear Channel. Clear Channel prohibits some messages outright, such as those related to sexually-oriented businesses and those it deems factually inaccurate. According to Clear Channel, it vets political messages for factual accuracy and ensures that no side of a political issue or electoral race receives favorable pricing.

B. Clear Channel Challenges the Tax

Shortly after the City enacted the Ordinance, Clear Channel sought to have it struck down as unconstitutional. An initial foray in federal court failed on jurisdictional grounds. Clear Channel then pursued a refund of taxes paid to the City under the Ordinance, citing the same constitutional grounds. That effort resulted in litigation in State courts, including this appeal.

1. Federal Declaratory Judgment Action Fails for Lack of Jurisdiction

In August 2013, Clear Channel brought an action challenging the Ordinance in federal court, arguing that the Ordinance impermissibly regulated commercial speech in violation of the First and Fourteenth Amendments of the United States Constitution. The City responded that, because the Ordinance imposes a tax, the Tax Injunction Act deprived the federal court of subject matter jurisdiction.⁷ In December 2015, the federal district court agreed and granted summary judgment in favor of the City. Clear Channel Outdoor, Inc. v. Mayor and City Council of Baltimore , 153 F. Supp. 3d 865, 875 (D. Md. 2015).

2. Clear Channel Pays Taxes and Requests a Refund

Following the federal court decision, Clear Channel paid the tax due under the Ordinance for the 2014 and 2015 fiscal years under protest. It requested a refund from the City, reiterating its argument that the tax is unconstitutional under the First and Fourteenth Amendments, and also invoking Article 40 of the Maryland Declaration of Rights. The City denied Clear Channel's refund request. It responded to Clear Channel's arguments, asserting that, because the Ordinance is a revenue-raising measure that satisfies rational basis review, it is constitutional. In July 2016, Clear Channel paid the tax due under the Ordinance for the 2016 fiscal year and again requested a refund – a request that was again rejected by the City.

3. Maryland Tax Court Affirms Denial of Refund

Clear Channel pursued an administrative appeal of the City's denial of its refund requests in the Maryland Tax Court. Again invoking the First Amendment and Article 40, Clear Channel argued in the Tax Court that messages on billboards are constitutionally protected speech. It asserted that the tax imposed by the Ordinance targets a limited number of speakers, thereby chilling speech, and that the burden that the Ordinance places on such speech is not narrowly tailored and outweighs any governmental interest that the Ordinance advances.

The Tax Court rejected Clear Channel's arguments. It noted the "strong presumption in favor of duly enacted taxation schemes." Clear Channel Outdoor, Inc. v. Department of Finance of Baltimore City , Appeal No. 16-MI-BA-0571 (February 27, 2018), 2018 WL 1178952 at *2-3 (quoting Leathers v. Medlock , 499 U.S. 439, 451, 111 S.Ct. 1438, 113 L.Ed.2d 494 (1991) ). The Tax Court concluded that an excise tax imposed on the privilege of exhibiting outdoor advertising displays is "a tax on the privilege of continuing in business, not on exercising free speech." Id . Indeed, the Tax Court continued, Clear Channel's conduct as a billboard operator was insufficiently communicative for the First Amendment...