U.S. States Move Forward with Digital Service Tax Legislation

Tech-companies are downsizing…. states are preparing for the digital tax era that’s now inevitable…. along with the enactment of the global minimum tax (read GMT article for reference) starting mid-year 2023. Hopefully, tech-companies are also preparing how to navigate the on-slot of digital service tax compliance and reporting requirements they may be subjected to.

During the January general assembly session, the Connecticut state legislature introduced a proposed bill, which includes an enactment of a digital advertising service tax at a rate of 10%. It’s intended to impose a tax on any business with an annual gross revenue exceeding $10 billion from digital advertising services. The bill also proposes to increase the corporate tax rate to 11.5% and extend the imposition of the corporate business tax surcharge and increase the rate to 20%.

Connecticut is one of a very few states deciding to increase corporate rates in 2023, most states are pursuing lower corporate rates or eliminating them all together. But Connecticut is not the only one that’s deciding to enact some form of digital service tax.

The state of New York legislators referred in January to their Budget and Revenue Committee a bill proposing a 5% tax on the gross income of every corporation that generates income from the data New York residents share with corporations. This tax is aimed at companies like Meta (Facebook), who gather consumer data from its subscribers then sell the activities to other companies. This is a very vague piece of legislation that falls short of explaining whether the tax is based on gross income earned from only the procured data of in state residents, or any gross income derived in the state.

Indiana submitted its third proposal to legislation to impose a surcharge tax on social media providers. A surcharge would be imposed on companies who; (1) have an annual gross revenue derived from social media advertising services in Indiana during a calendar year, multiplied by 7%, plus; (2) the total number of the social media provider’s active Indiana account holders in a calendar year multiplied by $1.

Each state has introduced a digital service tax law in previous sessions. But if the previous attempts to enact these bills suggests anything….it may not make it out of committee, for now; or they can be considered as a blueprint for what’s to come under the global minimum tax laws yet to be formed in U.S. Congress.

At this time, it is unclear whether these taxes will be enacted or not. But as mentioned before, a type of digital tax is inevitable. Therefore, it is important for businesses and individuals to stay informed about any future legislation and understand how it could impact them.

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Connecticut House HB No. 5673 and Senate SB No. 351

New York Budget and Committee Senate Bill No. S1845

Indiana HB No. 1517

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