States eye flurry of new taxes on Amazon, Facebook and Google

State lawmakers around the country are exploring a range of new taxes targeting Amazon, Facebook, Google and other Internet giants, seeking to capture some of Silicon Valley’s eye-popping profits and soaring share prices in the midst of the coronavirus pandemic.

Even as the U.S. economy struggles to regain its footing, some of the tech industry’s most valuable companies have thrived as Americans spend more time—and money—shopping and communicating on the Web. The disparity has caught the eye of policymakers across the U.S. who increasingly say it is time for the Internet’s cash-flush companies to start paying their fair share.

The tension has been on public display this week in Maryland, where Democrats in the state’s legislature are set to adopt a first-in-the-nation tax on online advertising as soon as Friday. Their vote, which is expected to override an earlier veto from Republican Gov. Larry Hogan, could raise $250 million to fund state education reform initiatives, its principal backers estimate.

The looming tax has drawn sharp opposition from a wide array of businesses, including Amazon, Facebook and Google, which have lobbied through industry coalitions, including the Internet Association. The group and its allies have blitzed the airwaves with ads in recent months, and they are expected to support an imminent lawsuit to stop the tax from taking effect. They argue Maryland is prohibited under federal law from assessing such levies on Internet companies in the first place.

The clash carries immense national implications at a time when states are struggling to balance their budgets and front the ever-rising costs of a national public-health emergency. The scramble to raise new money—and the newfound interest in taxing tech—reflects a growing belief among government officials nationwide that Silicon Valley for too long has failed to share the bounty of its unrivaled economic growth.

“Right now, they don’t contribute,” said Democratic state Sen. Bill Ferguson, the chief sponsor of Maryland’s tax proposal. “These platforms that have grown fast, and so enormously, should also have to contribute to the civic infrastructure that helped them become so successful.”

The renewed push in Maryland and across the country has coincided with another record-breaking earnings season in Silicon Valley and beyond. Amazon this month reported more than $125 billion in fourth-quarter revenue, marking the most lucrative three-month run in its history. Facebook raked in more than $28 billion over that same period, and Google took in nearly $57 billion, in both cases dwarfing analysts’ quarterly estimates. (Amazon founder and CEO Jeff Bezos owns The Washington Post.)

Wall Street has rewarded Silicon Valley’s strong returns handsomely, as these companies boast sky-high share prices that make them some of the most desirable stocks to own—and the most valuable firms in the world. But the industry’s immense gains also have fueled a renewed global debate over its financial responsibilities amid the worst economic downturn since the Great Depression.

In France, for example, government officials in recent months have sought to tax Apple, Google and other tech behemoths anew out of a belief that they dodge their dues. The companies have opposed the new taxes, which nearly sparked a trade war between France and the United States under the Trump administration. Last month, though, then-Treasury secretary nominee Janet Yellen endorsed France’s calls for a global deal on taxing these firms.

In the U.S., state policymakers are starting to sound a similar note: Democrats and Republicans alike have put forward a host of measures that seek to take more direct aim at Silicon Valley’s bottom line. MultiState, a government relations firm that tracks local legislatures, says it is eyeing at least 17 bills in 10 states that aim to impose taxes on tech giants, their profits, the data they collect and the services they offer.

Kansas Democratic Gov. Laura Kelly in recent days has proposed raising $97 million in new taxes that could apply to online streaming services such as Netflix and Hulu. Democratic lawmakers in Washington state, meanwhile, have sought to tax companies that sell consumers’ personal data as part of a broader push this year to protect state residents’ privacy online.

“Our tax system reflects our economy the way it was back when we achieved statehood,” said Democratic state Rep. Shelley Kloba,citing the state’s roots in industries like forestry before Amazon and Microsoft called Washington home. “Our economy doesn’t look like that anymore. The collection, processing and sale or commercialization of data is really big business.”

New York lawmakers have put forward a raft of similar proposals as they stare down a massive $20 billion revenue shortfall over the next four years. Others in the state have sought to return the tech industry’s record-breaking profits back to the people, believing that the public should share more directly in the financial gains generated from their personal data. A bill from Democratic state Sen. Sen. Kevin Thomas, for example, taxes tech giants to set up a new program for undergraduate students so that they can refinance their college debts at friendlier interest rates.

“Data is the new commodity out there,” said Thomas, who serves on a key tax-focused panel in Albany. “It gives companies the advantage in the market, and they make billions of dollars on it. And they’re not paying a penny to the people or the state.”

Indiana policymakers have eyed Facebook and other social media companies to fund investments in local infrastructure improvements. The nascent idea from Republican state Rep. J.D. Prescott aims to help boost broadband buildout in the state’s most rural areas, as members of the legislature seek to improve Internet access and affordability during a pandemic that has forced families to work and learn primarily online.

Prescott said he and his colleagues had been “thinking about what companies are really utilizing this [Internet] infrastructure, and not paying tax in the state for that infrastructure, and social media came to mind.” The GOP lawmaker likened it to truckers who pay a “wheels tax” for the long-haul rigs they drive on state highways to fund road repairs.

Many of these proposals are in their infancy, and their Democratic and Republican backers are likely to face years-long battles to navigate their states’ labyrinthine legislative processes—and overcome the tech industry’s formidable lobbying opposition. But experts say their success may hinge in part on the imminent action in Maryland, as lawmakers near passage of their controversial online-advertising tax.

Ferguson, who first introduced the tax, said he initially proposed it out of a belief it might help crack down on an industry that has repeatedly mishandled its users’ personal information. Unlike regulation, which runs the risk of falling obsolete, Ferguson said a tax on online ads could serve as a “monetary disincentive” for tech giants as they further refine their powerful algorithms for targeting narrow groups of users with ads.

Lawmakers have since recalibrated their bill to fund education initiatives. Democratic state Rep. Eric Luedtke, the majority leader in the Maryland House of Delegates, cited Europe’s efforts to rethink the way it taxes tech giants as he stressed the need for states like Maryland to collect more from businesses with the greatest economic footprints. His chamber voted to adopt the tax, and override Hogan’s earlier veto, on Thursday. Lawmakers are also expected to approve a new tax on online streaming over the governor’s objections.

“If you can imagine in the 1800s if the steel industry didn’t pay taxes at all, or the 1950s if the auto industry didn’t pay taxes at all … government is not able to provide the basic services it needs to provide,” Luedtke said.

But the Democrats’ approach has generated fierce opposition among Amazon, Facebook, Google and a wide range of businesses, including large national employers and local firms from Maryland. They banded together last year in a group called Marylanders for Tax Fairness led by Doug Mayer, a former Hogan aide. The coalition argues the cost of Maryland’s new tax ultimately will be borne by restaurants, shops and other small businesses that buy those ads in the first place.

“They think they’re going to hit these big out-of-state companies, and I think they’re swinging and missing and hitting their own constituents,” Mayer said.

Amazon, Facebook and Google, which belong to trade groups that have joined the Maryland coalition, declined on Thursday to say if they would raise their prices and pass them onto consumers if Maryland lawmakers adopt the tax. But their advocates’ lobbying efforts appear to indicate higher prices are on the horizon.

“It is going to be a cost that needs to be passed down the value chain,” said Chris Gilrein, the executive director for Massachusetts and the Northeast at TechNet, a lobbying group that represents the three companies.

Maryland lawmakers have since introduced emergency legislation that seeks to prevent them from doing so, which Mayer previously described as a form of “Soviet-era price controls.” The state’s legislators also have sought to exempt media outlets, including The Washington Post, that had lobbied as part of an industry trade group against the tax.

Some Maryland businesses are expected to file lawsuits to stop the tax from taking effect, stressing the state’s proposal is unfair, discriminatory and unconstitutional. They also contend it runs afoul of a federal moratorium on taxes that exclusively target Internet companies. Congress adopted that prohibition in 2016 out of a belief that state and local governments should not be able to nickel-and-dime revenue from companies that transact across borders.

“They didn’t want states to be able to limit the rise of electronic commerce, tax Internet access or otherwise restrict the ability to grow out the online sphere,” said Jared Walczak, the vice president of state projects at the Tax Foundation.

The potential legal impediments prompted Maryland Democratic Attorney General Brian Frosh to warn state lawmakers last year that there is a risk a court could strike down the state’s proposal. Walczak said the outcome of the expected lawsuits could carry great resonance, particularly in states that try to count on new, unsettled revenue from the tech industry as part of their budget plans.

“I expect other states to follow in Maryland’s footsteps on this,” he said. “There will be a lot of reticence because states know they will be setting themselves up for costly litigation. They don’t know if they will collect the revenue because of that.”

Even the looming law’s sponsors agree that the stakes are high, and the outcome unclear—though Ferguson said the legal and political fight ahead is one they’re more than ready to have in a quest to force the tech industry to “pay its fair share.”

“This is a conversation we need to be having nationally,” he added. “What is the responsibility of multinational digital platforms to contribute to society’s growth and civic infrastructure?”