Five Types of Businesses You Might Not Expect Could Be Targeted By NY’s Digital Tax

As NTUF’s Nicole Kaeding recently wrote, New York state legislators released a dangerous proposal for a so-called “digital tax.” This analysis expertly identified many of the biggest issues with the tax, including its interaction with other elements of New York’s tax code and its structure as a gross receipts tax.

But perhaps the most glaring issue with the tax, as it is currently written, is its vagueness. It would be assessed on the gross income of any corporation that “derives income from the data individuals of this state share with such corporations.” That’s the entirety of the operative language of the bill. The terms used in this phrase are never defined further.

If passed, that would mean there are essentially no limits on which industries would be affected by this destructive new tax. After all, nearly every business collects information from their customers, and just about every business action is taken in the furtherance of “deriving income.”

Failing to provide further specificity in the statutory language is not just foolish, it is dangerous. Unelected bureaucrats should never be counted upon to narrowly interpret powers they are granted, and a broad interpretation of a tax that is already massive in scope could devastate New York’s economy.

With that in mind, here are five examples of types of businesses that could find themselves slapped with a five percent gross receipts tax under the language of this proposal that don’t directly profit from selling consumers’ personal information.

  1. Restaurants: In the aftermath of California’s consumer data privacy law, many restaurant diners were surprised to find printed notices arriving with their meals that described the restaurant’s compliance with a law most thought was aimed at “Big Tech.” Restaurants often collect personal information for reservations or mailing lists, and technically the end goal of both activities is “deriving income,” therefore it stands to reason that they could be subjected to New York’s digital tax. 

  2. Any business with a savings or reward card program: Innumerable businesses offer customers the opportunity to participate in savings or reward programs that offer discounts or other special offers on their purchases. Think of your pharmacy or grocery store, where you scan your customer card in order to achieve the lowest available prices. Every one of these programs relies on the collection of data, be it your phone number or your purchase history, in order to build a better customer experience that the store hopes convinces you to stay loyal to their brand. As such, these businesses would likely fall under New York’s digital tax and be subject to crushing new taxes.

  3. Any place with free WiFi: Many coffee shops, big box stores, and airports offer free WiFi as a service to visitors. But to connect your laptop or smartphone to that free internet access, you’re sharing data about your devices with the shop providing the WiFi. Sometimes, logging in, offering your email address, or watching an ad is necessary before you’re granted access. In every one of these cases, you are providing data that a business is using to derive income, thus potentially subjecting them to New York’s proposed digital tax scheme.

  4. Subscription-based services: Are you a subscriber to a major news publication like The New York Times or The Wall Street Journal? Even if you don’t pay a monthly fee for full access or delivery of a physical paper and instead just provide your email address in order to read a few free articles per month online, New York’s proposed digital tax would likely hit these services with huge new tax bills. At their core, subscription-based publications like these collect some amount of data in order to try to convince you to pay for full access, or to put ads in front of you in a few free articles per month if they aren’t able to do that. That would put them squarely in New York’s crosshairs.

  5. Insurance companies: Auto insurers use data about your driving history, your age, your vehicle, and other factors to calculate a premium to charge you. Some offer discounts if you’ll agree to install a GPS tracker that can record your driving habits in a more granular fashion. Property insurers collect information about location, construction materials of structures, safety features like alarm systems, risk of natural disasters, and many other items in order to determine an appropriate premium. All of this, of course, is collected for the purpose of deriving income from customers. Thus, New York’s proposed digital tax scheme could apply to all such services, placing massive new tax burdens on an industry that few would think of as fundamentally “tech” in nature.

It’s possible that only some (or none) of these kinds of businesses would get a visit from revenue agents if New York were to pass its proposed digital tax. However, it does serve as a useful case study in why legislators need to be smart when they draft laws — lest their legal creations be enforced in ways they never thought of or intended.