If two New York legislators have their way, the state would hop on the digital tax bandwagon that states like Maryland and Nebraska are currently driving. While all three states’ proposals are unworkable, New York’s version is so vague that it could potentially target just about anything.
New York Assembly Bill 9112 and Senate Bill 6102 would impose a 5 percent gross receipts tax on any corporation which “derives income from the data individuals of this state share with such corporations.” Tax revenue raised from this would be used to create a fund to “distribute the earnings” to state taxpayers.
This discriminatory tax hike is a bad enough idea on its own, but the bill never even defines fairly crucial terms, which means that its impact is essentially unlimited. As such, what was likely intended to be legislation levying a tax on a narrow group of firms that are generally household names could end up giving statutory justification for tax bureaucrats to go after just about every business that interacts with New Yorkers.
Nearly any activity a business does is done in order to derive income — that’s the point of a business. And nearly all businesses collect consumer information in some way, shape, or form, for various purposes. While some sell this data, many more use it for more mundane business practices.
Take, for example, a restaurant that collects a customer’s email when they make an online reservation to sign them up for its mailing list. If that customer later returns to the restaurant because a well-timed email caught them when they had a hankering to go out to eat, that restaurant is “deriving income” from the data it collected from that customer.
While this may sound like a silly hypothetical, in fact restaurants are no strangers to complications from routine data collection. In the aftermath of the California Consumer Privacy Act, restaurant diners in California began receiving printed privacy notices alongside their menus because of data collection notification requirements from the law.
Even if New York tax bureaucrats forgo such aggressive applications (restraint that legislators should never rely on when drafting legislation!), other businesses will find themselves targeted. Facebook, for example, does not actually sell consumers’ data, but it does use the data it collects to offer better targeted advertising to businesses who choose to purchase advertising space on its platform. The data never changes hands, but New York would argue that Facebook “derives income” from being able to promise advertisers that their ads will reach a more precise pool of viewers.
These new proposals would be wrongheaded even if they weren’t so poorly written. The legislation’s justification claims that internet users are not being fairly compensated for their data, but that’s not the case — compensation comes in the form of free access to news, information, social media sites, and so on.
Take Spotify, a platform that connects users to tens of millions of songs and podcasts. The platform offers a free version where users need not pay — not with money, anyway. Instead, their attention is valuable to advertisers, value that Spotify monetizes through ad sales. Does a Spotify listener really deserve a kickback from this ad sale? No, the user already received his or her value with access to a library of music that would have been unheard of even just 15 years ago.
A tax that targets tech companies is a bad idea for New York, introducing an unnecessary bias in the tax code. But a “digital tax” that is so vague that it can be used to target just about anything would be far worse.