New Taxes May Be Struck Down For Violating First And Second Amendments

Conclusion of legal challenges to Maryland’s digital ad tax is expected to come in 2025.

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One month past the halfway point of the year, 2025 has proven to be a busy year on the tax policy front at the federal and state levels. In addition to passage of additional state income tax relief in a dozen states over the past seven months, including enactment of reforms that put income taxes in two states on the path to elimination, President Donald Trump’s Independence Day signing of the One Big Beautiful Bill Act permanently restored full year one deductibility of business expenditures and locked in the personal income tax rate cuts installed by the Tax Cuts and Jobs Act of 2017.

Though Congress took care of the federal tax bill by the President’s July 4 deadline and despite the fact that most state legislatures have adjourned for the year, 2025 still has the potential to produce a few more noteworthy tax developments, such as the possible conclusion of precedent-setting lawsuits seeking to overturn two new state taxes — the first-in-nation digital advertising tax that Maryland lawmakers enacted in 2021 and the excise tax on gun purchases approved by Colorado voters in 2024 — on the grounds that they violate the U.S. Constitution.

Maryland lawmakers instituted the nation’s first digital advertising tax in 2021, doing so by overriding a veto from then-Governor Larry Hogan (R). Since its enactment, multiple lawsuits have sought to overturn Maryland’s digital ad tax. Recent court decisions have produced mixed results and the final conclusion won’t be determined until the appeals process is finished, which could happen before the close of 2025.

In 2023, a circuit court judge in Anne Arundel County ruled in favor of Comcast, the lead plaintiff in one of the lawsuits challenging Maryland’s digital ad tax. The judge in that case deemed the tax to be a violation of the U.S. Constitution’s Commerce Clause and the federal Internet Tax Freedom Act.

The U.S. Chamber of Commerce, the Internet Association, NetChoice, and the Computer & Communications Industry Association (CCIA) have also filed a federal lawsuit against Maryland’s digital tax. That lawsuit challenges the “pass-through prohibition” included in the legislation imposing the tax, arguing it violates the First Amendment.

“It is unconstitutional when the government attempts to muzzle lawful speech,” Stephanie Joyce, senior vice president and chief of staff at CCIA, said about Maryland’s digital tax. “This statute forces websites to pay substantial portions of their global revenue to the state but hide these costs from consumers. The state is wholly unable to justify this speech ban.”

In July 2024, a federal judge ruled against the CCIA and fellow plaintiffs, deciding that the tax did not violate the First Amendment. That decision is now being appealed.

“This statute, which we have challenged since its enactment, imposes a tax on a website’s global revenues but prevents the site from revealing the tax burden to its users. The State of Maryland has admitted that the statute regulates speech,” CCIA noted in a statement, adding that “this speech regulation is an outright ban on websites communicating with users about their costs of service — communications that amount to political speech. This regulation does not meet the First Amendment standard for when a government can ban such speech.”

Maryland Digital Tax Violates The First Amendment, Colorado Gun Tax Violates The Second, Lawsuits Contend

While lawsuits challenging Maryland’s digital ad tax as a violation of the First Amendment work their way through the courts, so too is a lawsuit challenging Colorado’s new gun tax as a violation of the Second Amendment to the U.S. Constitution. In the 2024 general election, 54% of Colorado voters approved Proposition KK, a ballot measure that imposes a 6.5% state excise tax on firearms and ammunition purchases.

In April, The Colorado State Shooting Association, the National Rifle Association, the Firearms Policy Coalition, and others filed a lawsuit in Denver County District Court against Colorado Department of Revenue Executive Director Heidi Humphreys and El Paso County District Attorney Michael J. Allen seeking to overturn Colorado’s new gun tax. The new levy imposed as a result of Proposition KK’s passage is a 6.5% state tax assessed in addition to the 10%-11% federal excise tax on firearms and ammunition, which plaintiffs argue is a violation of the second amendment to the U.S. Constitution.

“It’s not just a 6% tax—it’s 6% on top of everything else,” Christopher Lewis, manager of Grandpa’s Pawn & Gun in Longmont, told Colorado Public Radio. “Here in Boulder County, now you’re talking around 14%. You’ve increased the cost of tax around 50% from what it was. That’s crazy.”

“The effects of the tax will be felt by all citizens of Colorado who elect to exercise their constitutional right to keep and bear arms as vendors pass the cost of the tax on to ordinary individuals who purchase firearms, firearm precursor parts, or ammunition in Colorado,” the lawsuit contends. “Both sides of the transaction will be meaningfully harmed. Vendors will lose valuable business while individuals will face a tax on the exercise of their legal and constitutionally protected activity.”

“This lawsuit is about defending the rights of law-abiding Coloradans and standing up against what is an unconstitutional and deeply misguided ballot measure,” Huey Laugesen, executive director of the Colorado State Shooting Association, said during an interview with The Center Square. “Proposition KK threatens to undermine legal commerce, punish responsible gun owners, and impose costly burdens on small businesses across the state — all without meaningfully improving public safety.”

“At its core, Proposition KK is not about reducing crime. It’s about making it harder for everyday Coloradans to exercise their constitutional rights,” Laugesen added. “The vague and overbroad language of the measure opens the door to arbitrary enforcement, confusion for retailers, and a chilling effect on perfectly lawful activity. The Colorado State Shooting Association believes in real solutions, not political stunts that punish responsible gun owners while doing nothing to address violent crime. That’s why we’ve taken this fight to the courts.”

In 2023, California Governor Gavin Newsom (D) signed legislation imposing an 11% excise tax on firearms and ammunitions sales. Two lawsuits were promptly filed seeking to overturn California’s new gun tax, and many expected a lawsuit seeking to overturn Colorado’s new tax to be filed after voters approved it last November.

Supporters of Proposition KK argue the new gun tax will provide funding for government programs that promote mental health, school safety, and provide services to victims of violence. Critics contend it’s a regressive tax that will disproportionately harm low-income households, many of whom live in high crime areas where there is greater demand for firearms to ensure their safety.

“You have people that need these weapons to defend themselves, to defend their families, and we’re making it more difficult,” Ian Escalante, executive director of the Rocky Mountain Gun Owners, told Rocky Mountain Public Broadcasting. Escalante says the new levy imposed by Proposition KK is “a tax on a fundamental constitutional right,” which he argues is “no different than the poll taxes that they tried to do in southern states almost 100 years ago.”

“Colorado’s Department of Revenue has responded to the lawsuit, requesting it be thrown out and denying that the tax violates any Second Amendment rights,” The Center Square reported on June 9.

The lawsuit against Colorado’s new gun tax is unlikely to be resolved until 2026 at the earliest. The fate of Maryland’s digital ad tax, however, could be determined by the end of this year, with the outcome being closely monitored by officials in other states. Bloomberg reported on the national implications of the case last week, noting that the pending decision “will give a state judge a chance to flesh out a seldom-used federal law barring discriminatory taxes.”

Aside from its direct effect on Maryland residents and companies that conduct business in Maryland, the final ruling in Maryland digital ad tax court cases will determine whether legislative proposals to impose similar digital ad taxes in other states move forward.