Posted by: Patricia Salkin | May 19, 2014

Fed Dist Court in MD Upholds Baltimore’s Sign Ordinance as Fee and Not Tax But Denies Motion to Dismiss Finding a Question as to Whether it Advances The Government’s Interests in Traffic Safety and Aesthetics

The Mayor and City Council of Baltimore, Maryland (“City”) imposed Ordinance 13–139 levying select outdoor advertising displays in the City. The ordinance recitals explained that “the unregulated display of outdoor advertising” was a public nuisance that “harmed the health, safety, convenience, and welfare of” City residents. By enacting the ordinance and imposing the charge, the City hoped to “properly allocate the potential economic burdens caused by the outdoor advertising while reducing these harms.”

But the charge was not universal because government entities advertising displays were not charged. Nor did the ordinance charge so-called “onsite” displays—displays that promote a business, commodity, service, event, or other activity conducted on the premises upon which the display appeared. Though the recitals insisted outdoor advertising was “a separate and distinct type of activity,” the ordinance supplemented a series of existing City zoning laws that regulated advertising signs. The zoning laws prohibited general advertising signs altogether in non-commercial areas, and in certain business and industrial areas. The zoning laws also made clear that no sign may constitute a traffic hazard, and that the City may relocate or remove any sign. Lastly, the City had prohibited the construction of new general advertising signs for more than the last decade.

Clear Channel Outdoor, Inc. (“Clear Channel”), owned and operated approximately ninety-five percent of the City’s non-governmental outdoor advertising displays and claimed would owe $1.5 million annually for its displays under the new ordinance. Clear Channel also alleged it is one of four non-governmental entities that owned or controlled outdoor advertising displays in the City, and that it alone would be responsible for ninety percent of the assessments collected. Clear Channel sued the City under 42 U.S.C. § 1983 alleging that the Ordinance violated the First Amendment. They sought a declaratory judgment that Ordinance 13–139 was unconstitutional and an order enjoining the City from enforcing it. At issue was (1) whether the charge constituted a tax under the Tax Injunction Act (“TIA”), and (2) whether charging outdoor advertising displays directly advanced the government’s interests in traffic safety and aesthetics as required by the First Amendment.

The United States District Court held that the ordinance was a fee for the purposes of the TIA. Regarding the First Amendment issue, there was a question as to whether charging displays directly advanced the government’s interests in traffic safety and aesthetics.

The court stated that its jurisdiction hung on whether, for the purposes of the TIA, Ordinance 13–139 imposed a tax or a fee. The TIA prohibits federal district courts from interfering with the collection of state taxes where a speedy and efficient remedy exists in state court. Determining whether the ordinance imposes a tax or a fee requires the Court to “ask whether the charge is levied primarily for revenue raising purposes, making it a tax, or whether it is assessed primarily for regulatory or punitive purposes, making it a fee.” In making this determination, the Court considers three factors: “(1) what entity imposes the charge; (2) what population is subject to the charge; and (3) what purposes are served by the use of the monies obtained by the charge.” If it remains unclear whether the charge is a tax or a fee after analyzing, the Court then considers the purpose behind the statute.

The court stated that on the one hand, the first factor suggested the charge was a tax. A charge imposed by a legislature is more likely to be a tax than one imposed by an administrative agency. And if the responsibility for collecting the charge lies with the general tax assessor, the charge is more likely to be a tax. The attendant charge was not imposed by an administrative or regulatory agency, but by the City Council. Also, the ordinance designated the City’s general tax assessor, responsible for collecting the charge. They also collected the civil penalties imposed if an advertising host fails to pay the charge when due and determines the penalty. On the other hand, the second factor suggests the charge was a fee. A charge imposed on a narrow class of taxpayers is less likely to be considered a tax than one imposed on a broader class. Here, the ordinance charged any entity that owned or operated an outdoor advertising display ten feet or larger in size. Any number of entities could bear that burden. However, only four did, and one of them was overwhelmingly responsible. Further, because Baltimore had prohibited the construction of new displays since 2000, the burden on those four entities was unlikely to change. The third factor was inconclusive. Other than the City’s assertion that the revenue would benefit the general public, it was unclear where the revenue generated from the ordinance actually went. The recitals suggested the revenue went toward offsetting public safety costs and lost economic revenue, but nothing before the Court showed this.

Therefore, the purpose behind the ordinance became the most important factor. This factor indicated that the ordinance was a fee. The recitals stated twin purposes, neither of which was indicative of a tax: (1) offsetting the economic burden caused by outdoor advertising displays, and (2) reducing traffic and aesthetic harms. The court stated that “Fees can serve regulatory purposes in two ways: either by discouraging particular conduct through the device of making it more costly, or by generating income ear marked to cover the cost of regulation.” Here, the purposes appeared to do both. The City levied displays to recoup the revenue lost by their presence. The City also imposed the charge for the purposes of reducing the number of dangerous and unaesthetically pleasing signs. In doing so, it specifically attempted to “discourage particular conduct through the device of making it more costly,” squarely within the realm of what courts consider a fee. Therefore, the Court would not dismiss this action on subject matter jurisdiction grounds.

The Court then turned to the City’s contention that Clear Channel’s Complaint failed to state a claim. The First Amendment protects commercial speech from unwarranted government regulation. Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 561, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980) outlines a four-part inquiry to determine the constitutionality of restrictions on commercial speech: (1) the expression must be protected by the First Amendment—“it at least must concern lawful activity and not be misleading”; (2) the government must have a substantial interest in restricting the speech; (3) the restriction must directly advance that asserted interest; and (4) the restriction must not be more extensive than necessary to serve that asserted interest.
The court stated that the third factor was the focus. Clear Channel argued the ordinance did not directly advance the City’s aesthetics and traffic safety interests because (1) the City could prove those harms are real and (2) that imposing a charge would alleviate them to a material degree. As to its first point, federal courts have consistently concluded that outdoor advertising displays pose “real and substantial” harms to traffic safety as a matter of law, irrespective of whether local legislatures have concrete proof. Similar conclusions with aesthetics have been reached. As to its second point, Clear Channel drew a distinction between ordinances that prohibit displays and the ordinance here, which imposed a charge. The court stated that Under Central Hudson’s, the restriction imposed must alleviate the cited harms “to a material degree.” Prohibiting displays did just that.

Clear Channel Outdoor, Inc. v Mayor and City Council of Baltimore, 2014 WL 2094028 (D.MD 5/19/2014)

The opinion can be accessed at:,%20INC.%20v.%20MAYOR%20AND%20CITY%20COUNCIL%20OF%20BALTIMORE

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