BILL COULD RAISE $250M BY TAXING TWITTER, FACEBOOK
Connecticut lawmakers have proposed a tax on social media ads sold by Facebook, Twitter and other industry giants, with one lawmaker saying it could create a $250 million windfall.
Under a bill sponsored by state Rep. Holly Cheeseman, R-East Lyme, a portion of tax revenue collected by Connecticut on digital ads would underwrite programs to reduce online bullying, which a number of studies have blamed for creating a sense of isolation for teens and tweens, and in some instances contributing to substance abuse and thoughts of suicide.
Rep. Sean Scanlon, DGuilford, who co-chairs the Connecticut General Assembly’s Finance, Revenue and Bonding Committee, floated the possibility of the tax adding potentially as much as $250 to $300 million, with the bill’s language not specifying a target amount.
Connecticut generated $4.7 billion from sales and use taxes in the fiscal year ending last June, with taxes on cable and satellite TV companies totaling only about $50 million.
A lobbyist for the Internet Association said Monday that any such law in Connecticut would “likely” violate the federal Permanent Internet Tax Freedom Act, which limits state taxation of digital revenue, and implied the trade association could sue if Connecticut enacts a law.
Asked by a lawmaker how much digital ad revenue is generated in Connecticut annually, he said he could not say, but acknowledged big annual gains by many in the industry, including during the pandemic.
Cheeseman filed the bill in January, a few weeks in advance of the Internet Association, NetChoice and the U.S. Chamber of Commerce requesting a court injunction against a similar law that Maryland lawmakers enacted over a gubernatorial veto. The Maryland bill would tax online ads sold by companies with $100 million or more in overall revenue. The Internet Association’s 40-plus members include Amazon, Facebook, Google, Microsoft and Twitter.
“When the states attempt to try to do something it’s actually a clear violation of the federal statute,” said John Olsen, director of Northeast state government affairs for the Internet Association, at a
“We suffer a lot, the more we aggregate economic activity on the internet — and while it benefits (through) a lower cost to consumers, it’s at a cost of the (tax) revenue to support services those consumers demand for most municipalities in the state. So I think this is a big question.” Rep. Steve Meskers, D-Greenwich
public hearing on Monday. “If you’re attempting to tax digital platforms — solely — then you are running afoul of PITFA . ... Overall, are we philosophically opposed to some kind of (tax) collection? I don’t think so.”
Sen. John Fonfara, D-Hartford, had sharp words on the subject of federal law overriding state policy objectives.
“This is a classic move by your industry, where you get Congress to preempt something,” Fonfara said Monday. “Then, when a state tries to do something, you come to the state and you say, ... ‘oh, this is preempted and it’s better that we work with Congress to move something forward — when you know that you have no intention of doing that.”
A lobbyist with NetChoice said that Connecticut could avoid an accusation of discriminatory taxation against social media companies by broadening the tax to cover all types of media, including newspaper, TV and radio advertising.
“There are a multitude of reasons to not do this — the easiest is that this is clearly unconstitutional,” said Carl Szabo, vice president and general counsel for NetChoice. “At the end of the day, you’re going to see no revenue from this bill . ... It will lose in court.”
Olsen said he was not aware of any current bill in Congress to create a tax on digital ad revenue. He added that digital ad platforms would likely push the cost of any tax on to the businesses that purchase ads. A new bill in Maryland would prohibit that practice, with Olsen shrugging off the applicability.
“Obviously if you’re contracted with a platform and their costs go up, they may just raise the price of doing business,” Olsen said. “I don’t think you can legally say, ‘There’s no way to pass the cost on’ — because you simply assess a different rate.”
On the heels of a landmark 2018 U.S. Supreme Court ruling that allowed states to tax online purchases, Connecticut implemented a sales tax for some 600 websites that deliver at least $250,000 in merchandise annually to addresses inside the state. Under a separate agreement with the state Department of Revenue Services, Amazon has been collecting sales taxes on purchased in Connecticut since 2013.
During the Monday hearing, Cheeseman rejected any contention that businesses large or small would be harmed by a tax on social media advertising, saying it would amount to “a very tiny percentage on a huge and increasingly growing pot” in her words.
In a survey from two years ago posted by the Cyberbullying Research Center, 29 percent of Connecticut teens polled indicated they had been on the receiving end of cyberbullying at least once in their life, with 14 percent indicating they had taken abuse online in the past month.
Rep. Steve Meskers, DGreenwich, backed up Cheeseman on the cost-benefit analysis.
“We may be talking about fractions of a penny per digital ad, so the impact on each of the advertisers is de minimus,” Meskers said. “We suffer a lot, the more we aggregate economic activity on the internet — and while it benefits (through) a lower cost to consumers, it’s at a cost of the (tax) revenue to support services those consumers demand for most municipalities in the state. So I think this is a big question.”