Christine Kim (Utah; Google Scholar) presents Taxing Digital Platforms (with Darien Shanske (UC-Davis; Google Scholar)) at Duke in the present day as a part of its Tax Coverage Seminar hosted by Lawrence Zelenak:
Tax methods have been struggling to adapt to the digitalization of the financial system. On the middle of the struggles is taxing digital platforms, akin to Google or Fb. These immensely worthwhile companies have a enterprise mannequin that offers away “free” providers, akin to looking the online. The service isn’t actually free; it’s paid for by having the customers watch advertisements and tender knowledge. Conventional tax methods aren’t designed to tax such barter transactions, leaving a spot in taxation.
One response, pioneered in Europe, has been the creation of an entirely new tax to focus on digital platforms: The Digital Companies Tax (DST). Although controversial, ten states have entertained imposing a DST, and Maryland truly did so. Maryland’s tax was instantly challenged, with the strongest argument towards the tax being that it’s preempted by the Web Tax Freedom Act. There’s appreciable consensus that Maryland’s tax is in deep trouble. We contend that this consensus is mistaken and that states mustn’t abandon a promising answer to a set of urgent issues.
A DST is a tax on consumption from the barter facet of platforms that isn’t presently taxed. With this coverage aim in thoughts, the primary authorized objections to DSTs seem fairly weak as a result of these claims depend on the notion that the tax is discriminatory towards web exercise. Actually, there isn’t a discrimination; DSTs are only a totally different tax used to seize untaxed digital buy in response to totally different enterprise fashions. We additional provide different normative arguments for DSTs, together with as a way of taxing digital platforms that take pleasure in supranormal returns whereas producing social hurt. Lastly, we reply to coverage objections as to potential tax pyramiding, regressive tax incidence, administrative difficulties, and using gross sales tax and company revenue tax.