As part of the growing trend of states seeking to tax digital activities and data, New York is considering yet another data tax proposal that would tax the collection of personal data for commercial purposes.  This latest proposal—which is contained in Senate Bill 4959—would impose a new excise tax “on the collection of consumer data of individual New York consumers by commercial data collectors.”  The tax would apply regardless of how the data is collected, whether by electronic or other means.  Under the proposal, “consumer data” is “any information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked with a consumer, whether directly submitted to the commercial data collector by the consumer or derived from other sources,” and a “consumer” includes individuals who purchase goods or services from a commercial data collector and individuals who use the services of a commercial data collector, whether charged for those services or not.  A “commercial data collector” is a “for-profit entity that: (i) collects, maintains, uses, processes, sells or shares consumer data in support of its business activities; and (ii) collects consumer data, other than consumer contact information, on more than one million individual New York consumers in a month within the calendar year.”  The bill would add the tax to a new section 186-h, within Article 9 of the New York Tax Law.

The rate of tax would apply on a graduated scale based on the number of New York consumers whose data the taxpayer collects in a month.  A “New York consumer” is “a consumer whose primary residence… is in New York state” as defined for personal income tax purposes, although the bill sets forth rebuttable presumptions as to when consumers will be considered New York consumers (e.g., a commercial data collector’s records indicate a New York home address, a New York mailing address, or a New York IP address, which is often unconnected to residency for personal income tax purposes).  The lowest rate is five cents per New York consumer whose data is collected. That rate applies to commercial data collectors who collect data on between one million and two million New York consumers in the month.  The tax rate gradually increases based on the number of New York consumers whose data is collected.  Commercial data collectors who collect data from more than ten million New York consumers in the month pay $2.25 million plus $0.50 for every New York consumer over ten million per month.  Notably, entities meeting certain common ownership thresholds are treated as a single taxpayer and are jointly and severally liable for the tax.  A credit is available to commercial data collectors who have also paid an identical tax on data collected from the same New York consumer to another state.

Senate Bill 4959’s proposed tax raises serious constitutional concerns involving the Commerce Clause, the Foreign Commerce Clause, and potentially the Takings Clause given that the imposition of the tax has no connection to the receipts or income, if any, arising from such data.  The bill’s tax rate and the amount of tax is based on the number of New York consumers whose data is collected.  As proposed, Senate Bill 4959 could result in multiple taxation if the data of New York consumers is also subject to another country’s tax, based, for example, on the market for the data.  Also, the tax does not appear to take into account the fact that revenues generated from New York customer data is likely subject to an income or gross receipts tax in New York or other jurisdictions where the commercial data collector operates. Thus, we anticipate Senate Bill 4959 to subject taxpayers to enhanced risk of multiple taxation.

Senate Bill 4959 is part of a growing trend of new tax legislation aimed at digital activities and data. We have summarized some of these other proposals in our previous blog post, New Year, New Digital and Data Tax Proposals.  New York, in particular, has taken a special interest in such proposals.  The state’s legislators are now considering four digital and data tax bills.  Given the current climate of COVID-related budget deficits, we anticipate additional legislation seeking to tax digital products and data.  These taxes, if enacted, will likely result in corresponding challenges due to their constitutional infirmities.

Contact the Authors: Maria Eberle, Lindsay LaCava, Mark Yopp