State legislators have already proposed a number of digital and data tax bills in 2021, some of which are new proposals while others reintroduce proposals from previous legislative sessions. The proposed bills fall into one of three categories: taxes on digital advertising services, taxes (or fees) targeting social media providers, and taxes on the sale or monetization of personal data. Most of the proposals are in the early stages, but a Maryland bill originally introduced last year is moving closer to a legislative vote on whether to override the governor’s veto.
These proposals reflect a trend not just within the U.S. but throughout the world. Many countries, including Canada are considering some sort of digital services tax. See our prior blog post, Canada Proposing to Increase Tax Registration & Collection Requirements for Non-Residents.
Digital Advertising Taxes
A number of states are considering digital advertising tax proposals, some of which would be imposed as new gross receipts taxes, while others would be imposed by expanding existing sales taxes:
- Connecticut Proposed House Bill 6187 would establish a 10% tax on the annual gross revenues derived from digital advertising services in the state for any business with annual world-wide gross revenues exceeding $10 billion. This is a “proposed bill,” which is a short statement explaining what the Finance, Revenue and Bonding Committee should propose by way of legislation, rather than a fully drafted bill with statutory language.
- Maryland’s bill to impose a digital advertising gross receipts tax, HB 732, which was originally introduced last year and subsequently vetoed by the governor, is moving closer to a legislative vote on whether to override the governor’s veto. See our prior discussion of Maryland HB 732 here.
- Maryland legislators have also proposed an additional digital advertising tax bill, SB 787, which would change the definition of “digital advertising services” in the bill discussed above (HB 732) to exclude services by news and broadcast entities, and would also prohibit a taxpayer from passing the cost of the tax to a customer “by means of a separate fee, surcharge, or line-item.” SB 787 is contingent on the enactment of HB 732 (i.e., contingent on the legislature overriding the governor’s veto of HB 732), in which case SB 787 proposes repealing and reenacting the digital advertising tax imposed under HB 732 with the amendments contemplated in SB 787.
- Montana’s proposal, House Bill No. 363, would impose a 10% tax on gross revenue derived from digital advertising services apportioned to the state where the provider has worldwide revenue of $25 million or more.
- New York legislators reintroduced new versions of digital advertising tax proposals that were previously introduced in last year’s legislative session, including a gross receipts tax proposal and a sales tax proposal. The new proposals have been introduced as S1124 (the gross receipts tax proposal) and S302/A734 (the sales tax proposal). We covered New York’s previous version of the digital advertising gross receipts tax here.
Social Media Taxes
A number of states are considering taxes (or fees) specifically targeting social media companies:
- Connecticut Proposed House Bill 5645 would establish a tax on social media provider companies on the apportioned annual gross revenue derived from social media advertising services in the state. Like the other Connecticut bill described above, this is a “proposed bill,” which is a short statement in non-statutory language, rather than a fully drafted bill with statutory language.
- Indiana House Bill 1312 would impose a “social media provider surcharge tax” on social media companies that: 1) maintain a public social media platform; 2) have more than 1,000,000 active Indiana account holders; 3) have annual gross revenue from social media advertising services in Indiana of at least $1,000,000; and 4) derive economic benefit from data individuals in Indiana share with the company. The surcharge tax would consist of: 1) a 7% tax on “the annual gross revenue derived from social media advertising services in Indiana”; plus 2) a charge of $1 per each of the social media provider’s active Indiana account holders in a calendar year.
- Indiana legislators are also considering a separate proposed bill, House Bill No. 1572, which would impose an “annual registration fee” on social media providers with more than 1,000,000 active users in Indiana (but no $1,000,000 Indiana advertising revenue threshold, unlike the tax proposal discussed above). The fee would be $5 per each of the social media provider’s active Indiana account holders in a calendar year.
Data Taxes
A number of states are considering proposals targeting income derived from the sale or monetization of personal data:
- New York legislators reintroduced the proposal to impose a 5% tax on gross income upon every corporation which derives income from the data that New York individuals share with such corporations. See S3790/A946. We covered New York’s previously introduced version of the data tax here.
- Oregon House Bill 2392 proposes a 5% gross receipts tax on the privilege of engaging in the business of selling taxable personal information at retail in Oregon. It would apply to taxpayers selling personal information accumulated from the Internet related to an individual using an Oregon IP address.
- Washington House Bill 1303 proposes imposing Business and Occupation (B&O) Tax at a 1.8% rate on every person engaging in the business of making sales of personal data or exchanging personal data for consideration in Washington. This rate would be higher than the Service and Other Activities B&O tax rate (which is 1.5%, or 1.75%, depending on the taxpayer’s gross income), although lower than Washington’s combined B&O tax rate and surcharge on “select advanced computing businesses” (those with worldwide gross revenue of more than $25 billion), which can be as high as 2.72%, depending on the surcharge amount.
We anticipate that additional taxes targeting digital advertising, social media companies, and/or sales of personal data will be introduced in the near future. If enacted, we expect taxpayers to challenge these taxes on constitutional, Internet Tax Freedom Act, or other grounds, depending on the structure of the tax.
Contact the Authors: Maria Eberle, Lindsay LaCava, Mark Yopp, Dmitrii Gabrielov
