The Problem:

Big Tech firms like Facebook, Google, and to a growing extent, Amazon make money selling ads. Those ad-based models lead to a range of harms, such as Google’s self-preferencing, as described above, or Facebook’s algorithims leading to the spread of misinformation and conspiracy theories. They have also led to the collapse of the newspaper industry, as ad money that used to support a wide network of journalism outlets, both nationally and locally, is now siphoned into the hands of a few dominant corporations, whose data collection practices and ability to target ads to individual consumers can simply never be matched by an individual publication.

The Policy:

States can tax the revenue corporations make from digital ads. In 2020, Maryland became the first state in the nation to pass a digital ad tax through the legislature, on corporations that make more than $10 million in digital ad revenue annually in the state. While taxing digital ad revenue does not fundamentally change the business model Big Tech corporations employ, it can be an incentive to push them to examine other options, such as subscription models, and can raise significant revenue for the state to spend on other priorities, including ameliorating some of the harms caused by tech corporations.

Model bill:

HB5645, Connecticut, 2021

The Pushback:

Maryland’s tax was immediately challenged in court, and critics point to implementation and jurisdictional challenges, such as determining where both ads and ad impressions originate. Indeed, states that want to adopt digital ad taxes are going to have to adapt them to whatever courts say is permissible, or push for a federal law overruling bad court decisions. To reduce these concerns, states can work together to craft common digital ad taxes and revenue sharing.[1]

Notes:

[1] Girard Miller, “How States Can Gird for the Coming Fights Over Taxing Digital Ads,” Governing, April 7, 2021, https://www.governing.com/finance/how-states-can-gird-for-the-coming-fights-over-taxing-digital-ads.html.