New York introduces data collection tax and digital advertising tax … again

New York has been toying with a digital advertising tax and data collection tax for years: The Legislature considered digital ad tax legislation in 2020, 2021, 2022, 2023, and 2024, as well as excise tax on data collection legislation in 2021–2022 and 2023–2024. With the introduction of Senate Bill S173 on January 8, 2025, and Assembly Bill A1434 the following day, they’re at it again.

S173 is much like several of its predecessors. It seeks to create a tax on annual gross revenues derived from digital advertising services in New York state. 

New York has also considered levying a sales tax on digital advertising services. While gross receipts tax is levied on the seller (sellers pay a percentage of their total sales, or gross receipts), consumers pay sales tax as a percentage of the retail sales price. Sellers collect sales tax from customers then remit it to the tax authority.

The proposed excise tax on data collection (aka data mining) takes yet another approach. Unlike gross receipts tax or sales tax, excise tax is imposed on a specific good or activity and is based on the volume of goods sold.  

One might say New York lawmakers have conducted spaghetti tests to see if any tax on digital ads or data collection would stick. None have yet, but 2025 could be the year. Read on to learn more about current proposals.

A1434 would establish an excise tax on the collection of New York consumer data by commercial data collectors.  

The bill defines “commercial data collector” as a for-profit entity that:

• Collects, maintains, uses, processes, sells, or shares consumer data in support of its business activities; and

• Collects consumer data, other than consumer contact information, on more than 1 million individual New York consumers per month

Think Google or Meta. 

A “New York consumer” means an individual whose primary residence is in New York state and who purchases goods or services from a commercial data collector — or uses those services free of charge. If you reside in New York and have an Instagram account, you’d qualify as a New York consumer.

“Consumer data” is any information that describes, identifies, relates to, or can reasonably be tied to a consumer, no matter how that information is obtained.

The tax rate would be based on the number of New York consumers. A company that collects data from 1.5 million New York consumers per month would pay a much lower rate of tax than a company collecting data from more than 10 million New York consumers per month. 

For example, the tax for a company with one to two million New York consumers would be five cents per month on the number of New York consumers over 1 million (but not more than 2 million). For a company with three to four million New York consumers, the tax would be $150,000 per month plus 15 cents per month per New York consumer over three million (but not more than four million). 

A company with more than 10 million New York consumers would pay a tax of $2,250,000 per month plus 50 cents per month per New York consumer exceeding 10 million. Given New York’s population, which is close to 20 million, this could add up.

New York isn’t the only state to consider such a data mining tax. Between 2020 and 2022, data mining tax bills were introduced in Massachusetts, New York, Oregon, Washington, West Virginia, and Washington, D.C. 

“There is no question that companies benefit from consumer data,” says Scott Peterson, VP of Government Relations at Avalara. Yet he wonders, “Should the government benefit from a person’s information?”

The latest iteration of a New York digital advertising tax would apply to each entity that has at least $1 million in annual gross revenues derived from digital advertising in the state.  

The tax would affect in-state businesses, out-of-state businesses, and companies based in other countries that meet this threshold. However, government entities and units or instruments of a government entity would not be subject to the digital ad tax.

“Digital advertising services” means “advertisement services on a digital interface,” including:

• Banner ads
• Interstitial ads
• Search engine advertising
• “Other comparable advertising services that use personal information about the people such ads are being served to”

Much like S1124, which was introduced in January 2021, the tax rate would be on a sliding scale:

• 2.5% of the assessable base for an entity with global annual gross revenues of $100 million through $1 billion

• 5% of the assessable base for an entity with global annual gross revenues of $1 billion through $5 billion

• 7.5% of the assessable base for an entity with global annual gross revenues of $5 billion through $15 billion

• 10% of the assessable base for an entity with global annual gross revenues exceeding $15 billion

New York’s digital advertising tax would take effect immediately if enacted. But frankly, it would be surprising for New York to adopt a digital ad tax while Maryland’s digital advertising tax is still under fire. And it is.

Maryland enacted the first-in-nation digital advertising gross revenues tax in 2021. It’s been defending the tax in court ever since. 

The Maryland digital advertising tax is a lot like the one proposed in New York S173. It taxes annual gross revenues derived from specified digital advertising services, including banner advertising, interstitial advertising, search engine advertising, and other comparable advertising services. The tax rates range from 2.5% to 10%, with the highest rate applying to companies with global annual gross revenues exceeding $15 billion.

These similarities should give New York lawmakers pause. Though the courts have consistently upheld the Maryland digital ad tax — or at least not ruled it unconstitutional — the legal battles are ongoing. Maryland won a victory in July 2024 when a federal judge dismissed a First Amendment challenge. But by November 2024, the plaintiffs had filed a brief with U.S. Court of Appeals for the Fourth Circuit, asserting the Maryland digital advertising gross revenue tax violates the First Amendment.

Round and round they go; where they’ll end up, nobody knows. Meanwhile, roughly 20 taxpayers seeking refunds for digital advertising tax paid to Maryland have filed suit in the Maryland Tax Court, according to an article published in Tax Notes in August 2024.

If Maryland prevails, New York and other states could be more likely to follow its lead.  

In 2021 alone, Connecticut, Massachusetts, Montana, New York, Texas, Washington, and West Virginia considered digital ad tax legislation akin to Maryland’s tax. (A hat tip to the Multistate Tax Commission for compiling this list.)

Bills seeking to levy a sales tax on digital advertising also emerged in 2021, in Louisiana, New York, South Carolina, Texas, and Washington, D.C. The same year, Arkansas, Connecticut, and Indiana considered taxing social media advertising, while Massachusetts, Oregon, Washington, West Virginia, and Washington, D.C., floated taxes on personal information or data.

For a while there, 2021 seemed poised to become the year of the digital advertising tax. 

Lawmakers may be waiting to see what happens in Maryland before committing to a digital advertising tax of their own, but they’re certainly ad-tax curious. In 2024, Massachusetts, Nebraska, Tennessee, and Washington, D.C., joined New York in introducing digital ad tax proposals. The Chair of the DC Tax Revision Commission now recommends implementing a data excise tax “in future years.” The financial benefits could be substantial: Maryland collected close to $82.5 million from its digital ad tax during 2023.

If New York or any other state adopts a tax on data collection or a digital ad tax in 2025, Avalara Tax Desk will let you know.