Report from the Chicago Sun-Times
In Brief – NetChoice, a digital company trade group, is suing to block the City of Chicago’s new social media tax, arguing it violates the First Amendment and the federal Permanent Internet Tax Freedom Act (PITFA). The new tax extends the city’s Amusement Tax to large social media platforms by charging them 50 cents per user beyond their first 100,000 local users. NetChoice argues that the per-user fee is a targeted tax on speech and publishing activity, which is clearly unconstitutional based on Supreme Court precedent. The trade group’s complaint also claims that the tax violates PITFA because it targets digital social venues without taxing traditional social venues and community engagement centers. City officials maintain the policy is legally sound and addresses harm linked to social media, particularly among youth. Illinois Governor JB Pritzker is calling for a similar tax statewide.
Context – Several states have tried to tax giant social media companies. They are motivated by a desire to raise revenue from big, out-of-state companies, and they add that the tax is warranted because social media is bad for young people. PITFA is often a problem because the law prohibits states from taxing online services differently than offline equivalents. Utah is a recent example, passing a tax on targeted advertising. The state argues that it will tax all advertising that is highly targeted and is done by a giant company that makes most of their money by advertising. But that boils down to just a few digital platforms so it likely has a PITFA problem. Maryland was the first state to enact a digital advertising tax, doing so in 2021. Although federal and state judges ruled that the tax violated PITFA, the matter is still tied up in court over the proper legal venue for state tax challenges. This is not the first time Chicago’s Amusement Tax, which is a sales tax now exceeding 10% on a wide range of entertainment services, has been applied to digital services. Over a decade ago, it was extended to customer bills for streaming platforms like Netflix. That survived a PITFA challenge in large part because cable bills and movie tickets faced the same tax.