New York Senate introduces digital advertising tax bill

Eversheds Sutherland (US) LLPOn March 13, 2020, New York State Senator and Deputy Majority Leader Michael Gianaris (Democrat) introduced New York S.8056, which would establish a tax on a digital advertiser’s annual gross revenues derived from digital advertisements in the state. 

New York’s proposed digital advertising tax is very similar to the tax proposed in Maryland. The major difference is that while the Maryland tax would apply to all digital advertisement services, the New York tax would be limited to targeted advertisements, i.e., those “that use personal information about the people the ads are being served to.”

Summary of S.8056
 
S.8056 would create a new digital advertising tax, which would be imposed on a digital advertiser’s annual gross revenues derived from digital advertising services in New York. “Digital advertising services” includes “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services, that use personal information about the people the ads are being served to.” “Digital interface” is defined as “any type of software, including a website, part of a website, or application, that a user is able to access.” “Annual gross revenues” is defined as “income or revenue from all sources in New York state, before any expenses or taxes, computed according to generally accepted accounting principles.”
 
Eversheds Sutherland Observation​: While New York S.8056 is very similar to Maryland S.B. 2, the New York digital advertising tax would be limited to the advertising services that use personal information about the people that the ads are being served to. This limitation may have been inspired by Professor Paul Romer, an economist who wrote a New York Times opinion last year that advocated for a tax on targeted digital advertising. He also testified in support of Maryland S.B. 2 before the State Senate’s Budget and Taxation Committee, but stated that he wanted to tax only targeting and tracking advertisements.
 

The proposed tax would be limited to those digital advertisers with at least $100,000,000 of global annual gross revenues and $1,000,000 of annual gross revenues derived from digital advertising services in New York. 
 
Tax Rate: New York S.8056’s tax rate scheme is identical to that proposed by Maryland S.B. 2. The tax rate varies depending on the digital advertiser’s global annual gross revenues:
  1. For global annual gross revenues of $100,000,000–$1,000,000,000: 2.5% of the assessable base (i.e., the annual gross revenues derived from digital advertising services in New York);
  2. For global annual gross revenues of $1,000,000,001–$5,000,000,000: 5% of the assessable base;
  3. For global annual gross revenues of $5,000,000,001–$15,000,000,000: 7.5% of the assessable base; and
  4. For global annual gross revenues exceeding $15,000,000,000: 10% of the assessable base.
Apportionment: New York S.8056 generally incorporates the same apportionment provisions as contained in the latest amended version of Maryland S.B. 2. Rather than try to identify the user’s device’s location by IP address (as in the introduced version of Maryland S.B. 2), New York proposes the use of an apportionment fraction. The numerator is the digital advertiser’s annual gross revenues derived from digital advertising in New York, and the denominator is the digital advertiser’s annual gross revenues derived from digital advertising in the United States. The bill would require the issuance of regulations to “determine the amount of revenue derived from each state in which digital advertising services are provided.”
 

Eversheds Sutherland Observation​: Much like with Maryland S.B. 2, New York S.8056’s apportionment provisions are un-administrable without regulatory guidance. The proposed apportionment fraction is as follows:

(Gross revenues derived from digital advertising in New York / Gross revenues derived from digital advertising in US) x Gross revenues derived from digital advertising in US = Gross revenues derived from digital advertising in New York

The end result is that the New York Department of Taxation and Finance will be given the broad power to determine when a digital advertiser’s gross revenue derived from digital advertising services is in New York, without any statutory guidance.


Next Steps

New York S.8056 has been referred to the Budget and Revenue Committee. The Eversheds Sutherland SALT Team will continue to follow this bill, along with Maryland’s attempt to tax digital advertising services.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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