Detailed Multistate Development
Last year, there were proposals in certain jurisdictions (DC, MD, NE, NY) that would have imposed a new tax on revenues from digital advertising or expanded the state sales tax to sales of digital advertising. This year, similar bills, as well as new proposals that are aimed at sales of personal data or social media companies, are popping up across the country.
The sale of personal data is the focus of bills introduced in Washington and Oregon. In Washington, House Bill 1303, if enacted, would extend the Business and Occupation (B&O) tax to “every person engaging within this state in the business of making sales of personal data or exchanging personal data for consideration.” “Engaging in business” in Washington would be measured by the state’s regular B&O economic nexus standard. The tax would be “equal to the gross income of the business multiplied by the rate of 1.8 percent.” Gross income from the sale of personal information attributable to Washington State would be calculated using a ratio, “expressed as a percentage, that the number of Washington addresses in the personal information bears to all addresses in the personal information,” provided that only personal information used to generate income of the business is considered in the calculation. If the taxpayer is unable to attribute the gross income of the business using this method, a population method or some other reasonable method allowed by the Department must be used to attribute receipts to Washington. If enacted, the proposal would be effective on January 1, 2022; it also imposes an annual information reporting obligation on entities selling personal information, effective September 1, 2022.
In Oregon, proposed House Bill 2392 would impose a five percent gross receipts tax on the privilege of engaging in the business of selling taxable personal information at retail in Oregon. The tax base, which would include consideration from other than cash and cash equivalents, is based on receipts generated from selling personal information of individuals with an Oregon IP address. Personal information is defined to include information that “identifies, relates to, describes or is capable of being associated with an individual,” not to include photographs. If enacted, the tax would be imposed on receipts from sales made on or after January 1, 2022, and returns would be due quarterly.
Bills addressing certain social media providers and services have been introduced in Indiana and Connecticut. In the Hoosier State, House Bill 1312 would adopt a new social media surcharge tax that would be imposed on social media providers with more than 1 million active Indiana account holders (defined as those with an IP address in Indiana or information showing residence in the state), that have annual gross revenue from social media advertising services in Indiana of at least $1 million, and that derive economic benefit from data individuals in Indiana share with the company. The surcharge would be equal to: (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by 7 percent, plus (2) the total number of the social media provider's active Indiana account holders in a calendar year multiplied by $1. To determine the amount of annual gross revenue derived from social media advertising in Indiana, the taxpayer would apportion their revenue using a formula that looks at Indiana social media advertising revenues over annual gross revenues from social media advertising services in the U.S. (no further delineation provided in the bill). Another Indiana bill, House Bill 1572, would require social media providers with more than 1 million active Indiana users to pay an annal fee of $5 per Indiana account holder per year. Proceeds from the two Indiana bills would be allocated to preventive services for bullying, social isolation and suicide and expansion of rural broadband. In the social media space, an intent bill has also been introduced in Connecticut (House Bill 5645) that would impose tax on a social media provider’s apportioned annual gross revenue derived from social media advertising services in Connecticut. Revenue from the tax would be dedicated, in part, to fund online bullying prevention efforts and training for social isolation and suicide prevention. At this point, there is no proposed language that sets forth the tax rate, apportionment, or other details on the new tax.
With respect to tax proposals addressing digital advertising that are more akin to those considered in 2019, another intent bill in Connecticut bill, House Bill 6187, proposes to raise a number of taxes generally and impose a new ten percent tax on the annual gross revenues derived from digital advertising services in the state for any business with annual world-wide gross revenues exceeding ten billion dollars. In New York, Assembly Bill 734 and Senate Bill 302 would extend the state’s sales and use tax to sales of digital advertising, except those for resale. The revenues from the sales tax would be used to provide zero interest refinancing of eligible student loans. New York Assembly Bill 946 would impose a five percent tax on the gross income of every corporation that derives income from the data individuals in New York share with such corporations. There are sparse details in the bill on how the tax would be computed, but the bill sets forth details on how revenues from the tax would be shared with New York residents. Finally, a fourth proposed New York bill (Senate Bill 1124) would impose a tax on the annual gross revenues derived from providing digital advertising services in New York. The rate of tax would be based on the taxpayer’s overall global annual revenues. Please stay tuned to TWIST for future updates on these proposals.
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