State Tax Pass-Through Limits Face Potential First Amendment Test

Corporations seeking to challenge state business taxes that restrict whether and how they can pass along the cost to customers have the chance to leverage a recently opened avenue for doing so: the First Amendment.

Washington state and Texas both tax companies that do business within their borders, with limits on whether and how taxpayers can pass along those added expenses to their customers.

Historically, such pass-through prohibitions have just been a cost of doing business. But thanks to a federal appeals court decision earlier this year, practitioners now expect new litigation over these laws—and they could be successful.

Pass-through ...