Statement of Principles on State Taxation of Digital Advertising and Data Usage

Policy Status

  • Type: Statement of Principle
  • Status: Final
  • Date Introduced: December 3, 2021
  • Date Finalized: December 16, 2021

Issues

  • Tax Reform
  • Innovation

    • Task Forces

  • Tax and Fiscal Policy

    • Tags

  • 2021 SNPS

    • Summary

    In the misguided pursuit of additional revenue sources, some states have considered harmful and unconstitutional tax policies on digital advertising or on the use of individual data. These proposals would institute new, duplicative gross receipts taxes on businesses that engage in basic activities like selling web ads and collecting email addresses for newsletters. Maryland passed a digital advertising tax bill over the veto of Governor Hogan, and several other states have similar bills moving through their legislatures or are expected to introduce them in upcoming sessions. States should take care not to craft policies that discriminate against digital commerce.
    Draft

    Statement of Principles on State Taxation of Digital Advertising and Data Usage

    Statement of Principles

    Opposition to Discriminatory Tax Treatment

    Well-crafted tax policy should not favor one form of commerce over another. Policies that target digital goods and services for taxation that their traditional counterparts do not face arbitrarily favor the latter, creating a competitive imbalance. Tax policy should be carefully structured to raise necessary revenue to support legitimate functions of government, not to address other policy concerns. When winners and losers in the market are decided by anything other than open competition, it is consumers who suffer.

    Opposition to Multiple Taxation

    The American Legislative Exchange Council has a long history of opposition to policies that result in multiple taxation. Should states impose new digital advertising or data taxes, businesses would face an overlapping system of multiple taxation on the same income.

    Recognition of Legal Barriers to Taxation of Digital Advertising and Data Usage

    Discriminatory taxation of digital goods and services potentially violates the U.S. Constitution, federal statute, international agreements, and state constitutions. Any such tax puts a state at risk of expensive litigation in state and federal courts.

    Recognition of Administrative Burdens of Digital Advertising and Data Taxes

    The complexity of the digital economy means that any attempt to impose new layers of taxation on top of existing business income taxes will entail enormous administrative difficulty. Small businesses in particular would be harmed by a system that requires expensive attorneys and accountants to decipher, putting them at a competitive disadvantage compared to large, established companies.

    Recognition of the Potential Benefits Offered By the Digital Economy

    Discriminatory tax policies targeting digital advertising and data usage threaten to hamstring the growth of the 21st century economy by preventing consumers, workers, and businesses from fully realizing their potential. Internet-based services have empowered millions of Americans, and consumers are best-served by a climate of low taxes and light-touch regulation that applies to all types of businesses.