Illinois’ new budget includes a new tax — shocking, we know. This time, the target is social media companies.
The plan is to create a graduated tax of sorts on those powerful businesses, based on the number of users they have here in Illinois.
The architects behind this grand idea say that it will generate about $200 million per year.
If it gets off the ground.
This statute reads more like a concept than a finished policy. Social media “fees” will be collected beginning Jan. 1, 2027, and seem destined for legal challenges long before then.
We never liked this idea in the first place. Now, a devastating analysis from The Tax Foundation details this ill-conceived and sloppy statute’s fundamental flaws. We’ll walk you through the basic mechanics and the biggest problems.
The plan imposes escalating monthly fees on social media companies based on the number of Illinois users they have, topping out at $165,000 per month plus 50 cents for every user above 1 million.
But what is a user? The authors never got around to identifying the very thing they want to tax.
Suppose one Illinoisan has two Facebook accounts and three Instagram profiles. Is that five users? One user? Two? What if some of those accounts aren’t active?
The statute doesn’t say.
What about those lovebirds who share an account? Is that one user or two?
Another mystery.
The problems go even deeper.
Who, exactly, counts toward these totals? The phrasing “average number of monthly users of the platform located in the State of Illinois” leaves things very vague.
Does this mean Illinois residents? People physically in the state, whether they’re visiting from out of state or not? Users whose IP addresses appear to be in Illinois but who may live elsewhere? Anyone whose profile lists Illinois as their home state?
You’d expect that a tax or fee that depends entirely on a count would also spell out the counting methodology in great detail.
But the legislation’s problems with definitions keep going.
Where’s the line between “social media” and “something else”? Legislative authors’ definition — that the service must “primarily serve” as a medium for users to interact with content generated by other users — is sweeping. So the law also leaves room for debate about which online services — Yelp? Nextdoor? Substack? Snapchat? Tinder? Ring? Reddit? BeReal? — qualify as “social media” platforms, offering little guidance on how regulators should make these determinations.
We wish more legislators had raised red flags before this thing sailed through the General Assembly.
We do not disagree with the sentiment that social media poses major cultural and societal problems, especially for young people. We understand the instinct to want to curb those ills.
Taxing social media, however, is difficult and complicated. While we’d prefer the state stop tacking on new taxes altogether, if you accept that this social media fee scheme is legitimate in theory, legislators at least need to clearly define exactly what they are taxing and how they intend to measure it. A tax that is claimed to generate $200 million annually should come with clear definitions and clear rules.
Legislators need to realize that big tech is self-protective and eschews state boundaries in multifarious ways. Thus, it is very difficult for states to tax.
Throwing legislative tax spaghetti against the wall isn’t going to stick.
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