New York state legislators recently introduced legislation loosely proposing to impose a five percent gross receipts tax on data sharing. The legislation says little about how the tax will work, but it has gained the attention of many. The proposal seems to be premised on the notion that corporations should be taxed on the use of customer data.

The Proposal:

Originally introduced in the New York State Senate in May 2019, SB 6102 did not garner much attention until an identical companion bill, AB 9112, was introduced on January 21 in the New York State Assembly. The bills propose to amend Article 9-A – which is the general corporate franchise tax law – to impose an additional five percent tax on the gross income of corporations that “derive income from the data individuals of this state share with corporations.” The revenue collected from the new tax would be paid into a new data fund and portions would be distributed to taxpayers of the state “to share in the wealth that is created from their data” (see SB 6102 memo).

The Flaws:

The bills lack the necessary specifics that any well-thought out tax proposal requires. It lacks defined terms and a workable standard for its collection. For example, the bills impose a five percent tax on “gross income,” but Article 9-A imposes tax on net income.

The calculation of the tax is also unclear. As written, it is impossible to determine how to attribute gross income to data procured from New York individuals. This is in part due to the bills absence of any apportionment provision.

Furthermore, the proposed gross receipts tax may result in “tax pyramiding” and damaging economic effects, as such taxes apply to receipts from all transactions, including intermediate business-to-business purchases and not just final sales.

As of the publication of this Alert, the bills have not seen any movement in the New York Senate or Assembly beyond introduction and referral to committee. Hearings have yet to be scheduled in either legislative house. Nevertheless, this troubling proposal should be monitored given the potential consequences to any business that collects data on its customers.