Representative J.D. Prescott (R) introduced Indiana House Bill 1312, which would impose a surcharge tax on social media providers. This proposed bill shares similarities with proposed digital advertising taxes in Maryland and New York, except that Indiana’s proposed surcharge tax is targeted at social media providers deriving revenue from advertising services on their platforms of at least one million dollars and does not contain a tiered rate structure.
Specifically, HB 1312 would impose a surcharge tax on social media providers equal to: (1) the annual gross revenue derived from social media advertising services in Indiana in a calendar year multiplied by seven percent; plus (2) the total number of the social media provider’s active Indiana account holders in a calendar year multiplied by $1.
A “social media provider” is defined as a social media company that: (1) maintains a public social media platform; (2) has more than one million active Indiana account holders; (3) has annual gross revenue derived from social media advertising services in Indiana of at least one million dollars; and (4) derives economic benefit from the data individuals in Indiana share with the company. The bill defines a “social media platform” to mean an internet website or internet medium that: (1) allows account holders to create, share, and view user generated content through an account or profile; and (2) primarily serves as a medium for users to interact with content generated by other third party users of the medium.
“Social media advertising services” means advertising services that are placed or served on a social media platform. The term includes advertisements in the form of banner advertising, promoted content, interstitial advertising, and other comparable advertising services.
The bill contains an apportionment provision, similar to the provision included in Maryland’s digital advertising tax bill (HB 732), which provides that the apportionment of annual gross revenue derived from social media advertising services in Indiana shall be determined using an allocation fraction, the numerator of which is the annual gross revenue derived from social media advertising in Indiana, and the denominator of which is the annual gross revenue derived from social media advertising in the United states, during the calendar year.
The bill would be effective January 1, 2022 and is expected, under the fiscal note, to raise between $35 million – $62.3 million in FY 2022 and between $60 million – $118 million in FY 2023, which would fund a rural broadband fund and an online bullying, social isolation, and suicide prevention fund.
If enacted, legal challenges will certainly follow as the bill appears to violate federal statutory and constitutional law, including the Permanent Internet Tax Freedom Act/Supremacy Clause and the dormant Commerce Clause. The Eversheds Sutherland SALT Team will continue to follow this bill during the legislative session, along with the many other digital advertising tax proposals that have been proposed and are surely to follow.