Annual sales of personal information in the United States now exceeds $300 billion. Some state lawmakers want to tax those transactions when they involve Washingtonians’ data. HB 1904 sponsored by State Rep. Norma Smith (R-10) would do that by placing a 3.3 percent business gross receipts (B&O) tax on the sale of a state resident’s personal information. Although the bill passed out of the House Committee on Technology and Economic Development last month with only one dissenting vote, the bill was given a less-than warm reception at a Friday, March 10 public hearing of the House Committee on Finance. It is scheduled for executive action on Tuesday, March 14.
Industry Leaders Caution Against Overregulation
State business and financial leaders warned the bill’s imprecise language and high tax rate could have unintended consequences for the state’s economy and taxpayers. However, remarks by committee members suggest that the bill’s overall concept could gain support if concerns are properly addressed.
“Overregulation in data in an information economy will stifle innovative, creative value producing uses of this data. This deprives consumers of helpful tools and applications that would be to their benefit,” Joanie Deutsch told the committee. She is the Executive Director of the Northwest for TechNet, a bipartisan political network with more than 70 members representing over two million employees in the fields such as information technology and e-commerce.
According to the bill report, the new tax would apply to both the seller and buyer and impact an estimated 20,000 current employers, along with an additional 5,000 new companies.
Modernizing State Tax Code
Smith told the Finance Committee on March 10 that the bill “is about modernization of our tax code. Now we live in a world in which the average Washingtonian, the average person in the U.S, their data is being sliced and diced into an average of 3,000 different components and bought and sold. It is a different world in which we live. It is a big data economy.”
“When you look at the cost of cybersecurity for the state agencies…all of that comes at a cost to government,” she added.
When asked by committee member State Rep. Larry Springer (D-45) how the bill would help with consumer data protection, Smith replied that “what it does do is, by setting it apart in its own unique B&O tax structure, it creates transparency where there is none at this time, so we will have we will be able to benefit from what is happening.”
“We’re going to be able to know the impact as it relates to how our data is being used, because we’re going to have that as an independent B&O tax structure,” she added. “We’re going to see the value of personal data in this economy.”
Certain types of sales involving personal information are already subject to the state B&O tax. The rate depends on the specific transaction and can range from .47 percent to 1.5 percent. Transactions taxed under hb1904 would be exempted from state and local sales and use taxes.
Taxing Personal Data Sales
According to HB 1904’s bill report, “personal information” is information that “identifies, relates to, describes, or is capable of being associated with a particular individual, including but not limited to”:
- A name
- A physical, mailing, or electronic mail address
- Physical characteristics or description
- Driver license and other identification numbers
- Financial, medical, employment, or education information.
Skeptics such as Deutsch say the bill’s general definition of personal information could result in audit disputes between a business and the state Department of Revenue as to whether a sale falls under this new tax category or not.
“The definition…includes elements that could be associated with the individual even if they aren’t associated that way, and could include routine information that is sent with every click on the internet,” she added.
The view is shared by Eric Lohnes, Director of Governmental Affairs on tax and fiscal policy for the Association of Washington Business. He told committee members “the sale of personal information is defined very broadly in this bill.”
He added that the “the three percent BO& tax rate is extremely high. So you guys know, that would be the highest in the state. Depending on how you define gross receipts, it’s potentially the highest in the nation. “
“This is a new concept; to our understanding, no other states are doing this,” he said.
Potential Cost to Consumers, Taxpayers
Other testifiers such as Cliff Webster warned the bill would apply to consumer reports used by insurance companies and banks. He is a lobbyist for Consumer Data Industry Association, which has more than 120 corporate members.
Although the new tax would directly impact those businesses, “it’ll be consumers and taxpayers that pay that,” he said.
Under state and federal law, banks are required to use credit reports for personal and commercial loans purchased from credit bureaus. Because of that, “raising their tax to 3.3 percent we don’t believe is necessarily reasonable,” said Denny Eliason. He is a lobbyist for the Washington Bankers Association, which represents nearly all the banks in the state. Like Webster, he believes the new tax burden would ultimately fall on banks and their customers.
At the March 10 public hearing, Springer observed at the meeting that some testifiers were “indicating that it is reasonable to tax the activity of collecting and providing data; the question is whether this is the appropriate mechanism or whether the rate is the appropriate rate.”
Committee members such as House Minority Floor Leader J.T. Wilcox (R-2) expressed concern that the tax might encourage Washington-based companies to move out of state to avoid it. However, DOR officials testified that the tax is based on whether the data is of a Washington resident, not the company’s location.