Minnesota Proposes Social Media Tax

Minnesota SF 3197 would impose a gross receipts tax on social media platforms that collect data from over 100,000 Minnesota consumers in a month. The rate depends on how many consumers data is collected from starting at 10 cents/customer/month if over 100,000 customers but not over 500,000, to 50 cents/month/customer if over 1 million customers. A consumer is only counted once per month. [also see bill summary from Senate Counsel]

Analysis from the MN Dept. of Revenue is that 14 social media platforms would be subject to this tax and it would generate $45.5 million for the General Fund for FY 2026 increasing to $99.9 million for FY 2029.

What is the rationale for this new tax? Likely it is revenue generation and to reflect the fact that the social media companies are making money from Minnesota consumers by getting their data and generating ad revenue from their use of the platforms. At a hearing on the bill on 4/9/25, the sponsor also noted concerns of some adverse effects of social media on children, "micro-targeting" (seemed to be a reference to cookies), great wealth of a few founders (Zuckerberg and Musk), efforts by some social media companies to reduce income taxes owed. Note that the hearing was available on YouTube.

The projection that this only applies to 14 social media platforms seems low until I looked up the definition of social media platform at MN 325M.31(j) and what is excluded such as an Internet search provider, Interview service provider, email service, broadband service, cloud computing service and others.  So I guess the tax would apply to Meta, TikTok, X, LinkedIn, YouTube, and others.

Observations:

It appears that the social media companies would not have to track down names or other identifying information of customers to count how many users but could just have some recordkeeping to show the number of unique users per month. If more data than this is needed, a privacy concern exists.

Does the MN income tax sourcing rules generate revenue from these companies? If not, can that be changed to generate tax under and existing tax rather than creating a new tax.

Is this fair to other companies that generate revenue from Minnesota consumers such as radio and television, email providers who run ads, any vendor who places "cookies" on user computers for continued advertising, "apps" that run ads, and more.

Would this tax violate the Internet Tax Freedom Act where there can't be a tax on an internet company if there isn't a similar tax on similar vendors (see my comment above).

One of the reasons offered for the bill is to address harms of social media implying that there are negative externalities. But are tax dollars from the social media companies (and others with negatives (such as advertising unhealthy products on all media for example)) sufficient to cover the costs of these negative externalities? Where is any data on this consideration?  Are there non-tax laws that might address some of these negative externalities (although it is difficult to regulate content online). The excise tax funds go to the General Fund, while I'm not a fan of earmarking tax dollars, seems that some of these funds should go to address some of the negative externalities such as providing alternative activities for children and helping parents with ideas on how to protect children.

What do you think?