Illinois' New Social Media Tax is a Shambles
Budget Writers Didn't Know How to Tax Social Media. They Did It Anyway.
How do you tax social media accounts?
Illinois lawmakers don’t know the answer, but that didn’t stop them from including a social media platform “fee” (tax) in the budget. In a new Tax Foundation piece, I refer to the new law as a shambles, but that may be an understatement. More than a decade ago, the term “omnishambles” entered the political lexicon, and that seems an apt description of the new Illinois social media tax. It’s abundantly clear that the budget writers didn’t know how to tax social media, so they just omitted virtually all the crucial details, leaving them for taxpayers and regulators to sort out. And in the few areas where they did specify any details, they managed to embed contradictions and calculation errors.
Is the tax on users or accounts? If someone has multiple accounts, are all of them taxed separately? If they have accounts on multiple services run by the same company, is that one user/account or several? Is someone an Illinois user for a given month if they’re just visiting the state, or only if they live there or primarily access social media from there? If the latter, for accounts without billing addresses (most social media accounts are free and some are wholly anonymous), should social media platforms rely on their most common IP address location or something else?
For that matter, what is a social media platform? The definition, which is anchored in permitting account registration and “primarily serv[ing] as a medium for users to interact with content generated by other users of the medium,” is potentially broad enough not just to capture Facebook, X, LinkedIn, YouTube, and Instagram, but also, potentially, WhatsApp, GitHub, Teams, Slack, Goodreads, Google Groups, iCloud, iMessage, Dropbox, Strava, Salesforce, Yelp, Indeed, Substack, and, under the most expansive reading, perhaps even Gmail. What platforms will ultimately be subject to the tax, and given the extraordinary compounding penalties imposed for non-payment, what happens if, say, Salesforce doesn’t believe it owes tax in Illinois and never reports or remits, and the state later determines that Slack, its business messaging app, is a social media platform?
The new law is silent on all these questions, and many others besides. What it’s not silent about: prohibiting companies from varying the price to account for the new tax, which raises important legal questions. Indeed, the tax implicates more Constitutional clauses than it contains pages of text: it invites challenges under the First Amendment, the Commerce Clause, the Due Process Clause, and the Equal Protection Clause.
Most lawmakers only saw the language creating the new tax when they voted on the budget early on the morning of June 1st (if then). Budget writers clearly didn’t spend much time developing the proposal. But there’s no question that the state will spend a lot of time with the text in the coming months and years, as this deeply flawed tax is extensively litigated in court.
You can read my new analysis here.
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