Bloomberg Law Analysis

ANALYSIS: States’ Tax Collectors Seek Slice of Data Brokers’ Pie

Feb. 22, 2021, 6:08 PM

Food lovers may appreciate the metaphor that data is the new bacon, but for those with a sweet tooth like mine, sugar works just as well. And as with sugar and pork commodities, the buying and selling of data attracts others who want a piece of the action. That includes state governments.

Legislators in Oregon and Washington, as though enticed by data brokers’ business model (which admittedly is pretty sweet), have introduced bills to levy taxes on the sale of consumers’ personal information.

While some may view taxation as a way to deter sales of consumer data, it’s debatable whether these proposals could be characterized as pro-consumer. After all, it’ll be state treasuries―rather than individual consumers―who stand to profit from the sales.

States like California and Vermont have already enacted laws creating data broker registries, which collect modest registration fees from $100 (in Vermont) to $400 (in California) annually.

The bills introduced in Oregon and Washington, by contrast, hope to supplement their respective state revenues with a windfall. Oregon’s HB 2392 proposes a tax of 5% on gross receipts generated from data broker sales, whereas Washington’s HB 1303 proposes to collect 1.8% of a broker’s gross income.

Still, an argument could be made that the Oregon proposal—with its high tax rate and broad definition of taxable personal information—is pro-consumer in that it may deter the sale of personal information. It provides no exemptions for de-identifed data and requires the submission of quarterly tax returns, possibly making it too tedious and expensive for brokers to bother to trade with Oregonians’ data.

The Washington proposal, however, is another matter. Its lower tax rate and explicit exemption for de-identifed data arguably make it more business-friendly so as not to scare off brokers ... with the added benefit of generating some revenue for state coffers.

While it’s too early to speculate on the success of the Oregon bill, an earlier taxation attempt was introduced in Washington’s 2017–18 legislative session, which provides a little insight into the appetite for a data broker tax in the Evergreen State.

Unlike the current bill, the measure introduced in 2017 (HB 1904) proposed a much higher tax rate of 3.3%. Significantly, it passed the House Committee on Technology & Economic Development—but only after it was amended to remove the imposition of a tax. It failed to advance any further.

Could the current Washington proposal meet the same fate?

Perhaps, but unlike the past measure (which was sponsored by a Republican), the current bill has 10 Democratic co-sponsors, and Democrats currently control the state House, the state Senate, and the office of the governor.

Moreover, the drafters of Washington’s current measure have included a shout-out to constituents whose data is being sold. Indeed, they expressly decry the sale of Washingtonians’ personal information “without any compensation to the people of the state.” But in a line worthy of Marie-Antoinette, they note that the bill will “generate revenue to be used for the benefit of the state of Washington and its people.” (Emphasis added.)

Indeed, let them eat cake, but a slice of pie may go to the Department of Revenue.

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