Bill would tax digital ads on Google, Facebook, raise up to $250M a year
State lawmakers grappling with pandemic-driven spikes in costs and looming budget shortfalls are looking to reach into the deep pockets of the tech industry.
A bill moving through the legislature would institute a new tax on digital advertising revenue from giants such as Facebook, Amazon and Google. Supporters say it could generate as much as $250 million a year.
The idea is drawing support from both conservative Republicans and liberals but it faces strong pushback from the tech industry’s lobbyists.
Connecticut isn’t the only state looking to tap the enormous economic clout of big tech: Maryland recently passed the nation’s first such tax and similar measures are under consideration in at least five other states. Several European nations have embraced a similar strategy.
At a public hearing on the measure Monday, Rep. Holly Cheeseman said the tech giants have grown rich by collecting the personal data of their users; why shouldn’t they be taxed on that?
“[The] Facebook, Googles of this world ... without a doubt have monetized Connecticut residents’ information and their browsing habits for their benefit,” said Cheeseman, a Republican from East Lyme who introduced the legislation. She was among the lawmakers grilling the industry lobbyists whospoke out against the measure at the virtual hearing held by the tax-writing finance committee.
Cheeseman said she’s heard from “a number of residents who complain that [they] Googled something and all of a sudden there’s this Facebook ad.”
“Surely,” she added, “it’s within a state’s rights to look at how ... we best protect our residents and provide a revenue stream, when no doubt you’re benefitting from it.”
The tech companies have come to dominate American culture and commerce, reaping record profits in the process, said Rep. Sean Scanlon, a Democrat from Guilford.
“Google generated $134 billion dollars in advertising in 2019,” said Scanlon, the co-chair of the finance committee, “an increase from $79 billion in 2016.” And that was before the pandemic pushed the tech company’s profits even higher as they reached even deeper into virtually every aspect of modern life.
Labor leaders also spoke in favor of the tax. “For decades, social media mega-companies, and tech giants like Google and Amazon, have grown exponentially by collecting personal information and availing themselves of state infrastructure without contributing anything to Connecticut taxpayers,” Sal Luciano, president of the Connecticut AFL-CIO, said in written testimony to the finance committee.
“They profit from surveilling and collecting data from Connecticut users and then employing that data to target their advertisements,” Luciano said.
John Olsen, Northeast director of state government affairs for the Internet Association, a trade group that counts Amazon, Google, Twitter, Uber and dozens of other Silicon Valley firms as its members, is among those fighting the bill.
Olsen told legislators that such a tax would hurt small businesses, who rely on tech platforms to advertise.
“If you pass a tax like this, the person who is going to most feel it is the small business, who’s trying to use these platforms to advertise,” Olsen said. “If you assess ... a tax on the large companies, that will ultimately reflect in the cost that everyone whouses those platforms pays.”
Cheeseman said she does not believe such a tax would hurt small business “or any business ... it’s such a small [part] of a huge and growing pot.”
The Connecticut proposal, House Bill 5645, does not specify how much that tax would be. It would direct at least a portion of the revenue raised to fund online bullying prevention efforts and training and research to address social isolation and suicide prevention.
In Maryland, lawmakers approved a graduated tax based on a company’s earnings. For example, companies that net between $100 million and $1 billion in revenue will be assessed a 2.5% tax on all digital ads displayed on its site within the state. The rate rises for larger firms; for companies with revenue that exceeds $15 billion annually, such as Amazon and Google, the ads would be taxed at 10%.
The law, which was vetoed by Republican Gov. Larry Hogan and overridden by the Democratic-controlled legislature, is already the subject of a lawsuit. The tech lobbyists warned Connecticut to wait until the legal action has been resolved before enacting its own version of the digital ad tax.
Despite the threat of legal action, at least five other states — Massachusetts, New York, Washington, Indiana and West Virginia — are contemplating similar taxes.
Carl Szabo, vice president and general counsel for NetChoice, another industry group, said such state-level efforts to tax digital advertising would run afoul of the federal Internet Tax Freedom Act. The act, passed by Congress in 1998, bars states from imposing taxes on internet-only services.
But Cheeseman noted that the internet — and the role the tech giants play in the lives of most people — has changed significantly since 1998.
“This was passed way back when when no one had any inkling about what the size of the market would be, the amount of revenue generated [and] the way residents browsing habits would be monetized by these large corporations,” she said. “It may be somewhat incongruous for a Republican to be making this argument but I happen to feel that this was not anticipated.”
“We talk about the brick-andmortar stores that benefit from digital advertising,” Cheeseman added, but “they’re the same ones who are being destroyed by the digital world.”