Ohio: Cincinnati Billboard Tax Violates First Amendment

Listen to a brief overview of state tax developments this week, including Ohio, or read full Ohio development below.

Detailed Ohio Development

In Lamar Advantage GP Co., LLC v. Cincinnati, the Supreme Court of Ohio recently held that Cincinnati’s local tax on “outdoor advertising signs” violated the First Amendment. To help balance its budget, the City of Cincinnati adopted a new excise tax on the installation and maintenance of outdoor advertising signs—e.g. billboards. The tax applied only to billboards that promoted commercial activities at a location other than that on which the billboard was located. In other words, a business placing a billboard or sign on its property that advertised for that specific business was exempt from paying the tax. Due to the exemption, the majority of billboards affected by the tax were owned by two companies, the taxpayers in this case. Together, the taxpayers owned over 850 billboards, 10 percent of which would need to be sold because the tax made them unprofitable. The content on the taxpayer’s billboards were approximately 70 to 75 percent paid advertisements, and the remaining 25 to 30 percent of the advertising space was donated for public-service announcements or consisted of the taxpayer’s own speech (e.g., tributes to notable public figures and veterans).

The taxpayers filed a suit against the City, arguing that the tax violated their constitutional rights under the First Amendment. After a trial court ruled in the taxpayers’ favor, the First District Court of Appeals reversed the lower court, holding that the tax did not violate the First Amendment because it was content neutral and did not single out billboard operators specifically. 

The Ohio Supreme Court first reviewed the history of the First Amendment jurisprudence in the context of taxes imposed on the press. From those cases, the court determined that: (1) the press can be subject to a generally applicable tax, (2) “a tax is unconstitutional if an official must look at the content of speech to determine whether the tax applies,” (3) when a tax singles out a small group of speakers, it creates a “danger that the tax will be used to censor speech,” and (4) the tax’s purpose does not have to be to specifically suppress or punish speech for it to be found unconstitutional. Applying these principles to the case at hand, the court concluded that the selective tax on billboards violated the First Amendment. Specifically, the court concluded that the tax was imposed on communications, not the noncommunicative aspects of billboards, and it was not applied broadly to all advertisers or advertising signs. Rather, the tax was imposed predominantly on the two taxpayers. Because that tax burden was not spread across city council’s constituency, but was instead imposed predominantly on two companies, the court concluded the political process may not alleviate the potential that the tax might be used to suppress, control, or punish speech. Instead, the tax was structured in a way that burdens activities protected by the First Amendment and creates a potential tool for censorship. Thus, the court determined that the tax did not meet the strict scrutiny standard and was unconstitutional.  The Ohio Supreme Court acknowledged that the Court of Appeals of Maryland, in Clear Channel Outdoor, Inc. v. Dir., Dept. of Fin. of Baltimore, recently upheld Baltimore’s tax on the privilege of selling advertising space on billboards against claims that the tax infringed on the rights to free speech and a free press. The Ohio court did not find the Maryland court’s analysis to be persuasive. It should be noted that the taxpayer in the Maryland case has filed a petition for certiorari with the U.S. Supreme Court. Please stay tuned to TWIST for future updates on the cases involving taxation of advertising- billboard or digital!  

This Week's Developments

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Featured Speaker

Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US