Digital Dignity & Reducing the Regressive Sales Tax
With respect to people’s time and attention, there have been few things since the invention of the internet that have been more socially destructive than targeted ad-based online marketing, which is at the very heart of toxic surveillance capitalism — the business model that drives app designers to keep users glued to their phones and on-edge waiting for the next ping, like, or vibration.
Addressing Toxic Surveillance Capitalism
While most apps and websites are superficially free to users, it is well known within the tech industry that the users’ data (and purchasing power) are the real product, and the real consumers aren’t the folks browsing websites and using apps but instead the companies purchasing targeted advertising based on users’ real world location, past behaviors, and online persona that is developed and tracked across large numbers of apps, websites, social media, search engines, and connected devices. For these online marketing platforms, the unit of measure for user’s time, attention, and data is the CPM (“cost-per-mille” or cost-per-thousand ad impressions displayed or audible to users) and other similar ad purchasing units (e.g. “cost-per-click” or “cost-per-view”).
For those interested in understanding more about the impact of this business model, I strongly recommend reading Stolen Focus by Johann Hari.
While I would honestly prefer if the tech industry vastly reimagined the fundamental business model that is driving society into a de facto surveillance state in service of ad revenue, the opportunities for government to intervene in this marketplace without overstepping into the realm of suppressing free speech seem fairly limited. Also, from a practical perspective taking on the lucrative business model of the very companies that we as a society collectively spend about half of our waking lives interacting with and communicating thru would be extremely difficult from a political will perspective.
In addition to direct lobbying efforts, companies like Google, Meta, and Amazon (to name just a few examples) could and likely would (and probably already do to a certain extent) use or modify their existing algorithms to display search results, social media posts, and other online content that support or favor their business models. With any amount of concerted effort on their part, they could quickly convince enough voters that any sort of limitation on the invasive targeted ad tracking system they’ve devised is “bad for consumers” or would result in users being required to pay inordinate sums of money to access content that they would otherwise (nominally) get for free. Therefore, rather than attempting to directly abolish this shadow financial system, I would suggest that we start to tax it, so that we as a society can start to reclaim some of the financial value extracted invisibly from us when we use “free” ad-based web services.
When a company or marketing team is looking to setup an ad campaign online, they are able to very specifically target users based not only on search terms but also their previous interests (as learned by algorithms that track users across many websites, devices, content streamed, and items purchased) as well as their location as determined by IP address, billing address, or even based on what cell phone towers are nearby. It is the location-based targeting that I believe opens the door to straightforward taxation at the state level.
Reducing the Regressive Sales Tax Burden
At a minimum, I would propose legislation that includes targeted ads as a product or service that is subject to state sales tax at today’s 6.25% rate. If implemented, the sales tax could be funneled into general state budget, used to fund more regular “sales tax holidays” that typically occur once per year on certain categories of brick and mortar retail sales, or even bring in enough revenue to allow us to reduce (or maybe even entirely eliminate) sales taxes on all in-store purchases in Massachusetts.
I prefer the third option of sales tax relief for in-person, in-restaurant, or in-store purchases, because it has the dual benefit of reducing the regressive tax burden on those that can least afford it and also promotes retail and restaurant sales in local communities that can’t be outsourced.
An Excise Tax to Deliver Broadband and Better Behavior
If there were enough political support for the concept, I would further advocate for taxation of targeted ads as an excise tax (commonly referred to as a “sin tax”) above and beyond the normal sales tax rate, similar to tobacco, alcohol, and legalized marijuana (see: https://www.mass.gov/info-details/massachusetts-tax-rates).
If implemented an excise tax could leave room for exemptions or graduated taxation rates depending on the level of control and transparency provided to users about how their data was being stored, shared, and used by online marketing platforms and third parties. We could potentially providing financial incentives for app designers to create default settings and user interfaces that prioritize mental health and wellbeing (such as eliminating the use of “infinite scroll” functionality on social media) contrary to their existing business models. It could also enable a substantially higher taxation rate for ads targeted at or delivered to minors. Overall the excise tax approach could drive better behaviors by online advertisers without having to introduce additional, clunky banners and pop-ups that were necessitated by EU regulations.
For the excise tax, I would propose that the revenue be dedicated to funding free or discounted residential broadband — or even to fund a state-backed but independently operated special purpose non-profit with an obligation to serve every household in the commonwealth with at least gigabit speed broadband! (This would be similar to electric distribution companies that have an obligation to serve everyone in their service territory even if they are far from urban centers.)
How Much Tax Revenue Could This Raise
Estimates indicate that the average person now sees 6,000 to 10,000 ads per day or as many as 5,000 advertisements per day. Or put another way, “On average, children see 20,000 thirty-second commercials each year. Adults see an average of 2 million of those on a yearly basis.” Let’s generously assume that only half of that is from online advertising that could be captured as taxable revenue, which would mean that 2,500 to 5,000 ads per day per person (or roughly 1 million per adult per year) could be subjected to sales or excise tax. With a population of roughly 7 million people (and let’s generously round down to 5 million adults viewing online and streaming ads just so we don’t over estimate), that could result in 5 trillion ads served to Massachusetts adults per year.
To better understand how targeted marketing works, I setup a few brief ads on Google for myself as an advertiser. As I did so, the algorithm recommended $50/CPM in one advertising method and over $200/CPM when embedding a sponsored ad in the search results. Again, I will be overly cautious for estimating purposes and assume that only $10/CPM ($10 per 1000 ads displayed or audible to users) is the average going rate. With 5 trillion ads served per year to Massachusetts adults, there would be 5 billion CPMs or $50 billion of taxable sales in Massachusetts.
At a the current 6.25% tax rate, that would be a conservative estimate of $3,125,000,000 of potential sales tax revenue from targeted online advertising. Even if the real collectible tax revenue is only half of my already conservative estimate, that would still bring in over $1 billion of revenue that could go to reducing the regressive sales tax burden on Massachusetts residents!
For comparison according to the Massachusetts Blue Books, Massachusetts collected a total “sales & use tax” from all sources of $8,809,380,084 in fiscal year 2022 and $9,448,137,004 in fiscal year 2023. This means we can conservatively estimate that we could offset $1 out of every $8 in sales tax revenue (and potentially more) by simply adding “online and streaming advertisements served to or targeted at people in Massachusetts” to the list of taxable sales in Massachusetts.
This could introduce a lot more flexibility in the annual budget, and it could allow us to reduce the regressive sales tax rate below 6% (or even 5%) on in-person purchases of real world goods and services. If necessary, this relief could be targeted to only categories of items that support survival and living a dignified life. However, if possible, I would avoid the bureaucratic administrative burden and simply lower the standard rate for all in-person purchases.
How to Make it Work from a Technical Perspective
While the nuances of the statutory language would need to be vetted throughly, the state should start requiring tax to be collected by online marketing platforms for any advertisements targeted at Massachusetts users, defined as a user with a location in Massachusetts as determined by their billing, mailing or shipping address, IP address, cell phone tower proximity, GPS coordinates, or any other similar method that online marketing platforms use for identifying, categorizing, or serving advertisements to users.
Since it is clear that location-based targeting is generally considered a feature (and not a bug) of online marketing platforms, existing platforms already have ready access to and provide this sort of detailed (but often “anonymized”) data to the companies paying them to display ads. Therefore, tech companies should not have any technical issue reporting on or complying with the tax obligation at the point of sale for ads specifically targeted at Massachusetts users by location or to be collected after the fact based on the number of targeted ads served to Massachusetts users based on other market segmentation criteria. At which point, online marketing platforms could only avoid the taxation for targeted ads by specifically excluding Massachusetts users or locations from their marketing algorithms.
While sales taxes for physical goods are generally limited to institutions with some sort of physical presence or a certain level of sales revenue in the Commonwealth to make enforcement more realistic and feasible, it should be entirely feasible to enforce tax obligations on remote online marketing platforms. In this instance, the legislation could include enforcement provisions that mandate that telecommunication utilities subject to oversight by the Department of Public Utilities block the IP addresses associated with the delivery of advertisements by online marketing platforms that are failing to collect and pay the appropriate tax revenue. In effect, this would completely shut off further ads from reaching the vast majority of Massachusetts users until the online marketing platform regained its good standing with respect to its tax compliance.
Relevant Data Sources
MA Blue Books detailing total tax revenue collected in Massachusetts each month and year:
How much ad revenue does Alphabet (aka Google) collect:
How much ad revenue does Amazon collect:
How much ad revenue does Meta (aka Facebook) collect:
How much ad revenue does TikTok collect:
How much ad revenue do streaming services collect: