The Ohio Supreme Court ruled on Sept. 16, 2021, that an excise tax imposed upon a small number of billboard operators by the City of Cincinnati (City) violates the rights to freedom of speech and free press protected by the First Amendment to the U.S. Constitution.1 In doing so, the Court permanently enjoined enforcement of the tax.
Cincinnati Billboard Tax
In June 2018, the Cincinnati City Council enacted legislation levying an excise tax on the privilege of installing, placing, and maintaining outdoor advertising signs in the City.2 Enacted in response to an expected budget shortfall of $2.5 million, the tax was expected to raise approximately $700 million annually. Specifically, the ordinance requires an advertising host (the owner or controller of the outdoor advertising sign) to pay a tax equal to the greater of (i) 7% of the gross receipts generated by the outdoor advertising sign or (ii) an annual minimum amount calculated based on the type, location and square footage of the sign.3 Further, in the original ordinance passed by the City, the advertising host was prohibited from issuing a statement to an advertiser reflecting the tax, and from indicating that an advertiser would absorb the cost of the tax.4
The definition of the term “outdoor advertising sign”5 incorporates by reference the term “off-site sign,”6 which serves to exclude on-site signs from the excise tax. In addition, the City’s ordinance provides several other specific exemptions, including signs displayed in the public right-of-way and signs erected or displayed on city-owned property.7
As enacted and due in part to practical application of the statutory definitions and exemptions, the excise tax burden has fallen predominantly on only two billboard operators qualifying as advertising hosts8 that engage in the business of leasing billboard space for the dissemination of commercial and noncommercial speech.9 The two operators control most of the market for billboard advertising in Cincinnati, collectively owning over 800 billboards. The majority of the billboards (70-75%) regularly display paid advertisements, with the remaining advertising space donated for public-service announcements or used by the taxpayers for their own messaging. The paid advertisements include political advertisements for candidates for local office, and members of City Council have regularly contacted taxpayers to request the donation of billboard space or to press for the removal of messages with which they disagree. The taxpayers maintain editorial control over the billboards.
Because the billboard tax would make their less profitable billboards unsustainable, the taxpayers estimated that the tax would result in the removal of approximately 70 or 80 billboards. Further, they could not viably pass on the cost of the tax to customers without losing business due to competition with other advertising mediums. In response to enactment of the tax, the taxpayers initially brought separate actions in the Hamilton County Court of Common Pleas seeking a declaration that the tax violated their constitutional rights to free speech and a free press by requesting an injunction against its enforcement. The trial court consolidated the cases, and in its decision permanently enjoined the city from enforcing the tax. On appeal, the First District Court of Appeals10 concluded that the tax itself does not violate the First Amendment, because it is content-neutral and does not single out billboard operators in a way that threatens to censor their speech, but that the statutory provision precluding communication between advertising hosts and their customers regarding who bore the cost of the tax violated the First Amendment. The taxpayers separately appealed to the Ohio Supreme Court, which accepted the challenge. Subsequently, the City repealed Cincinnati Municipal Code Sec. 313-7, removing the prohibitions on a taxpayer from issuing statements to an advertiser reflecting the tax and from indicating that an advertiser would absorb the cost of the tax.11
Ohio Supreme Court decision
The sole issue for consideration by the Court was whether the billboard excise tax is a discriminatory tax that violates the rights to freedom of speech and a free press protected by the First Amendment. As publishers using printing technology for mass communication and exercising editorial discretion over messages they publish, the taxpayers are generally protected by those constitutional rights. Based on historical analysis, these federal rules are intended to preclude the federal government and the states from adopting any form of previous restraint upon printed publications, or their circulation.12
Reviewing several cases addressing First Amendment issues, the Court focused on its function of prohibiting the government from singling out the press for disparate treatment through selective taxation.13 Such differential treatment, unless justified by some special characteristic of the press, implies possible suppression of expression, which clearly violates the rule. Based upon review, the Court discerned four fundamental principles: (i) the press may be subjected to a generally applicable tax; (ii) a tax is unconstitutional if an official must look at the content of speech to determine whether the tax is applicable; (iii) a tax that selectively singles out the press or targets a small group of speakers creates the danger that the tax will be used to censor speech; and (iv) it is not necessary to prove that the purpose of a tax is to suppress or punish speech to establish that the tax violates the First Amendment.
Applying the four principles to the City’s billboard tax, the Court determined that the selective tax on billboards violates the First Amendment. First, the Court rejected the City’s argument that the tax is imposed on the noncommunicative aspects of billboards. In order to be subject to tax, the billboard must be leased or offered for lease – it is not applicable to all signs. Further, the tax is not generally applicable as it does not apply to all or many businesses equally. Instead, it is levied primarily upon two companies and is “structured in a way that burdens activities protected by the First Amendment and creates a potent tool for censorship.” In conclusion, the Court likened the billboard tax to the type of taxes that were a cause of the American Revolution: “taxes that curtail the amount of revenue raised by the press through advertisements and tend to directly restrict the circulation of protected expression.” Therefore, the Court found that the billboard tax infringes on the rights to free speech and a free press protected by the First Amendment, and as such, permanently enjoined its enforcement.
The Ohio Supreme Court clearly distinguished its conclusion from a recent Maryland Court of Appeals decision which upheld Baltimore’s tax on the privilege of selling advertising space on billboards against similar First Amendment claims.14 The Maryland decision, which has been appealed to the U.S. Supreme Court, concluded that the tax at issue did not single out the press and noted that the Baltimore tax had no effect on the billboard owners’ circulation of messages. In the instant case, the taxpayers presented uncontradicted evidence that the billboard tax would lead to removal of their less profitable billboards. Further, the Ohio Supreme Court disagreed with the Maryland Court of Appeals’ analysis of whether the practical application of the Baltimore billboard tax to only a small number of speakers presented a constitutional issue.
The purpose of the City’s billboard tax was meant to fund special projects designated by the City Council relating to human services and public health. Notably, the Court observed that paid advertisements typically displayed on the billboards at issue included political advertisements for candidates for local office, including judges and members of City Council, as well as the non-commercial speech of non-profit organizations, religious groups, advocacy groups, and charities. Further, members of City Council routinely contacted the taxpayers to request the donation of billboard space or to press for the removal of messages with which they disagreed. The Court relied upon specific examples of usage to determine conclusively that the taxpayers exercised editorial control over the messages displayed on their billboards, and that some of the taxpayers’ activity was undertaken as a means to mollify the City Council, particularly with respect to content that they might have found objectionable. The different outcomes reached by Ohio and Maryland on their relatively similar taxes on billboards, along with the First Amendment concerns raised by these types of taxes, may make this an appealing controversy for the U.S. Supreme Court to consider in the coming months.
2 Cincinnati Municipal Code Ch. 313, enacted by Ordinance No. 167-2018.
3 Cincinnati Municipal Code § 313-3.
4 Cincinnati Municipal Code § 313-7(a), (b). This provision was repealed by Emer. Ord. No. 0380-2020, § 3, eff. Nov. 12, 2020.
5 Cincinnati Municipal Code § 313-1-0, incorporating the definition of the term “off-site sign” and including “an outdoor advertising sign used from time-to-time as a noncommercial sign or an on-site commercial sign.”
6 Cincinnati Municipal Code § 1427-03-O, defined as a commercial sign that “proposes or promotes a commercial transaction to be conducted on a premises other than the premises on which the sign is located” or that “directs attention to a good, product, commodity, business, service, event, or other object that serves as the basis of a commercial transaction that is not conducted” on the premises on which the sign is located.
7 Cincinnati Municipal Code §§ 895-2(a), 723, 723-1-A2, 723-17, 895-2(c), 895-2(d), 723-6(b), and 723-13.
8 Cincinnati Municipal Code § 313-1-1A.
9 Lamar Advantage GP Company, LLC, d.b.a. Lamar Advertising of Cincinnati, OH, and Norton Outdoor Advertising, Inc.
10 Lamar Advantage GP Co., L.L.C. v. Cincinnati , 2020-Ohio-3337, 155 N.E. 3d 245.
11 Concurrently, Cincinnati Municipal Code § 895-1-O, defining “outdoor advertising sign,” was amended to mean a sign leased or offered for lease by its owner to another, including for the placement of a message on the sign.
12 U.S. Const., Amends. 1, 14.
13 Citing Grosjean v. Am. Press Co., 297 U.S. 233 (1936). In that case, the state of Louisiana had imposed a tax on gross receipts from advertising publications with weekly circulations above a threshold amount which fell exclusively on thirteen newspapers. In invalidating the tax, the Court determined it to be a deliberate device disguised as a tax and intended to limit circulation of information. Other cases considered include Minneapolis Star & Tribune Co. v. Minnesota Commr. Of Revenue, 460 U.S. 575 (1983) and Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221 (1987).
14 Clear Channel Outdoor, Inc. v. Dir., Dept. of Fin. of Baltimore, 472 Md. 444 (2021).
Ying Lee is a partner in Grant Thornton's State and Local Tax practice, and leads the Ohio State and Local Tax practice. Ying has extensive experience advising companies on multistate tax planning strategies aimed at minimizing state and local tax liabilities, resolving tax controversies, performing M%26A due diligence reviews, and assisting with complex compliance issues.
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Jamie C. Yesnowitz
Jamie Yesnowitz, principal serving as the State and Local Tax (SALT) leader within Grant Thornton's Washington National Tax Office, is a national technical resource for Grant Thornton's SALT practice. He has 22 years of broad-based SALT consulting experience at the national and practice office levels in large public accounting firms.
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