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.
Washington legislators may introduce a digital advertising tax bill in the state’s upcoming legislative session. See H-0028.1 (advance copy; not yet introduced). Washington’s potential legislation is the latest in a recent trend of digital advertising tax proposals (including in the District of Columbia, Maryland, Nebraska, New York, and West Virginia, none of which have become law as of the date of this blog post).
On July 21, the Washington Department of Revenue (“DOR”) issued its analysis of the Court of Appeals’ decision from March 30, 2020, in LendingTree, LLC v. Dep’t of Revenue, no. 80637-8-I (Wash. App. Ct. Mar. 30, 2020). As set forth in the analysis, from the DOR’s perspective, the LendingTree court followed the existing Washington Business and Occupation tax (“B&O”) attribution rules and guidance and did not create a new interpretive legal framework. Although the DOR lost the case, and the court held that LendingTree’s receipts could not be sourced based where its customers’ customers were located, the DOR’s response suggests that they are factually distinguishing the case and will continue to attribute receipts to the customer’s customer location if that is where it determines the benefit of the services occurs.
State efforts to undermine or challenge the Quill Corp. v. North Dakota, 504 U.S. 298 (1992) physical presence standard escalated this summer with the enactment of two sales and use tax laws targeting marketplace operators. Minnesota House File 1 (“H.F. 1”) and Washington House Bill 2163 (“H.B. 2163”), signed into law on May 30, 2017 and July 7, 2017, respectively, impose sales and use tax obligations on certain marketplaces that facilitate the sales of out-of-state third party retailers. Minnesota and Washington are the first two states to enact such laws, and similar legislation is currently pending in the Pennsylvania General Assembly.