Report from CBS News
In Brief – Leading Democrats in the Minnesota state legislature are proposing to tax large social media platforms as part of an effort to close a state budget deficit estimated to reach $6 billion. Legislation approved by the Minnesota House and Senate tax committees would require social media platforms with more than 1 million users in the state to pay $165,000 per month plus $0.50 per person that uses their sites, while imposing lower tax rates on smaller digital platforms and fully exempting those with less than 100,000 users. The state’s revenue department predicts 15 social media companies would be impacted and the surcharge would bring in about $340 million in revenue over the next four years. Opponents of the tax proposal argue that it clearly violates the federal Permanent Internet Tax Freedom Act (PITFA) that prohibits any federal or state tax that discriminates against an internet-enabled business or service.
Context – Several US states have explored taxes that replicate the “digital services taxes” (DSTs) enacted by countries like France and India targeting large online platforms, including Google, Meta, and Amazon. Those foreign DSTs were strongly opposed by the first Trump Administration and are again a major point of friction. Maryland was the first US state mover, taxing large online advertising businesses in 2021. On its face, Maryland’s law appears to violate PITFA because offline advertising is not taxed the same way. Business groups quickly challenged the law and federal and state judges have both found the law in violation of PITFA, but a morass of jurisdictional challenges have moved the case to new venues, and the complaint is currently in the Maryland Tax Court, a state administrative body that hears tax assessment challenges. In recent years, states exploring various digital services taxes, often described as taxes on digital advertising, data processing, or more recently social media, include New York, California, Washington, and Rhode Island. Backers are calling for a more coordinated state campaign reminiscent of the decades-long effort to collect state sales taxes on cross-border internet-enabled retail.