States And Their New Social Media Tax Policies

Across the nation, there’s a feeling that the big social media companies just aren’t paying their fair share. For years, they’ve been pocketing billions of dollars in advertising income, but haven’t been paying it back to the tax authorities. And now a growing number of states want to change this.

Maryland became the first state in the nation to place a tax on revenue from online advertising. Basically, Maryland will levy a tax of anywhere from 2.5% to 10% on the annual gross revenue from digital ads. As might be imagined, the big tech companies went ballistic when this happened, because the law appeared to be aimed squarely at them. There’s now a challenge in the federal courts from the big tech companies, as well as all kinds of controversy about whether this tax grab is even constitutional.

States and their new social media tax policies

Emboldened by Maryland’s move, other states also want to get into the game. New York, for example, is attempting to place a 5% tax on businesses engaged in data mining. And Indiana wants to tax social media companies at a rate of 7% on gross income from advertising services. Meanwhile, New Jersey is pondering a new tax of its own, with a focus on digital advertising and data services. All told, as many as nine states might be on the cusp of passing new taxes on social media companies.

While terms like “paying your fair share” probably resonate with normal everyday taxpayers, the dirty little secret here is that many of the states looking to tax social media companies are doing so because they are trying to plug budget deficits. They know that they can’t tax the middle class, so they are trying to tax big tech companies. Who’s going to complain about billionaires in Silicon Valley having to pay higher taxes, right?

Impact on social media companies

The big question, of course, is what impact all of this taxation is going to have on social media. If companies like Meta (parent of Facebook and Instagram), Alphabet (parent of Google), and Twitter have to pay higher taxes on online advertising revenue, that’s going to make social media a whole lot less profitable for them. Right now, they are literally making billions of dollars by selling your data to advertisers. So if they have to give some of that profit back, do you really think they are going to stand idly by while this happens?

One option for social media companies – other than attempting to fight all these new taxes in court – is to come up with other revenue opportunities. In some ways, we’ve already seen this with Elon Musk and Twitter. Over the past few months, a number of options have been floated about how to make more money from users. Subscriptions and “tier levels” for individual users are one option. Recently, another strategy coming from Twitter HQ is that free access will no longer be granted for use of its API. Instead, Twitter will charge $100 per month for developers who want to use its API.

Passing on the costs to customers?

In short, as with any business, there will be an attempt to pass on the new costs to consumers. The days of completely free social media usage may be coming to an end. You’ll be “subscribing” to these platforms and paying them a monthly fee, just like Netflix. If you want something premium, like a blue check mark next to your name, you may need to pay a higher fee.

So be careful what you wish for. It might sound fantastic that people like Mark Zuckerberg are going to be hit with brand new taxes. But we all know who will be paying in the end.