This tax which was signed into law with the new budget is a tax on “the number of Illinois users from whom the social media platform collects data within a month.” This is based on a monthly report showing the “average number of monthly users of the platform located in the State of Illinois.” My first question is…
1 – What exactly is the average number of monthly users?
How does anyone determine this in a given month? Over a longer period such as a year there might be an average number, but there can’t be an average inside a specific month.
2 – What’s a user?
Is this a person or an account? If a person has multiple accounts on the same social media platform, does each account constitute a separate user?
If someone has accounts across multiple services operated by a single company like Facebook and Instagram, is each taxed separately? If an account is shared by multiple people, such as family members or a business, does that count as one user or more than one?
Is an account even required? If someone reads a Reddit thread without an account, do they count as a user?
3 – What is an “Illinois” user?
Is this someone who lives inside the state? What happens if an Illinois resident is vacationing in Wisconsin and they access their account? What about a non-resident who accessed their social media accounts during a layover at O’Hare or while in Chicago for a convention?
4 – How would their Illinois connection be determined for tax purposes?
A paid account would have a billing address on record, but most social media accounts are free and don’t require one. Others are completely anonymous.
5 – What constitutes a social media platform?
According to the law, a social media platform is a website or internet medium that “permits a person to become a registered user, establish an account, or create a profile,” and something that “primarily serves as a medium for users to interact with content generated by other users of the medium.”
This captures Facebook, X, LinkedIn, Instagram, YouTube, and Reddit. But what about Yelp, Substack, or WhatsApp? The language is vague.
The tax is $6 per user per year, or $0.50 per user per month for large social media platforms,. There are lesser amounts per user for smaller platforms. Starting in 2028, these amounts are annually adjusted for inflation.
6 – What happens if you don’t comply?
There are, of course, penalties. The law states, “If a social media platform fails or refuses to pay the monthly fee to the Secretary of State, there shall be added to the fee an amount equal to 100% of the unpaid fee and any penalties each month until the fee is paid.”
If the unpaid fees and penalties compound monthly, the penalties for nonpayment would become astronomical in no time at all. Who could possibly afford the penalties if they decided to audit you five or ten years in the future?
And does this only apply if a company fails to file, or would it apply if the Secretary of State’s office objected to how they calculated “Illinois users” and believes that they failed to pay the monthly fee for some number of users?
Let me leave you with this…
How does anyone capable of cognition sign this into law? I’ve read lousy tax law before, but this one has the word “incompetence” written all over it.
Take a moment and imagine the legal challenges this will cause. If you were one of the lawyers in Facebook’s legal department, wouldn’t you be chomping at the bit to file this suit?
How could you possibly lose?
Further complicating matters is the fact that it’s structured as a fee even though it’s clearly a tax, and it’s run through the Secretary of State’s office rather than the Department of Revenue. This new tax is a legal minefield, forcing the state to defend itself against what will probably become strong constitutional challenges on multiple fronts.
The concept of a social media platform tax has been in the governor’s budget proposal for months, but the language was only provided with the enactment of the budget early on the morning of June 1st. Lawmakers and the public had no time to review the text before the vote.
And while the Governor’s Team had months to work on it, they seem to have completely dropped the ball. It’s hard to take any of this seriously, except that it’s now Illinois law, and we need to try to comply.
Exactly how we’ll do that is beyond imagination.
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