Report from Utah News Dispatch
In Brief – Utah’s legislature has passed SB287, a bill imposing a 4.7% tax on the targeted advertising revenues of the largest social media companies. The bill targets digital platforms that generate at least $1 million in targeted advertising revenue in Utah, earn more than $100 million from targeted advertising outside the state, and have at least half of their overall revenue come from targeted ads. Backers link the measure to the broader campaign to protect young people from so-called “addictive” social media platforms. The bill directs the revenue from the tax to fund programs such as child literacy initiatives, youth sports and recreation, and mental health services. Critics argued that the bill does not actually regulate harmful online practices and warn that taxing digital advertising will harm startups, small businesses, and free online services.
Context – The key theme here is the effort to circumvent federal law. Actually, two different federal laws that govern online activity. First is the Permanent Internet Tax Freedom Act (PITFA). It prohibits taxing online activity differently than offline alternatives. In this case, advertising. Utah is trying to circumvent PITFA by claiming all advertising is taxed if it is highly targeted and is done by a giant company that makes most of their money by advertising, meaning Google, Meta and TikTok. Maryland was the first state to do this to raise revenues from the digital giants. They enacted a tax on digital advertising services in 2021. Federal and state judges soon ruled that the tax violated PITFA. However, the Maryland tax remains tied up in federal and state courts battling over the proper legal venue for state tax challenges. It is currently in the Maryland Tax Court. Washington, New York, California, Rhode Island and Minnesota have subsequently pursued their own types of digital taxes. The second circumvention effort involves Sec. 230 and social media. The legislative and litigation campaigns alleging that social media is “addictive” were created to legally justify regulating social media platforms when it’s not possible to regulate how online platforms moderate legal but objectionable content.