States are broaching a new way to incentivize companies to keep data private—a sales tax. The latest effort comes from New York State Senator Andrew Gounardes, who has introduced the Data Economy Labor Compensation and Accountability Act in collaboration with Brooklyn Borough President Eric Adams. The proposal would enact the equivalent of a 2% tax on annual receipts earned off of the data of New York residents.
“Data is here and is being used and commoditized and commercialized in ways that we as laypeople don’t fully understand,” Gounardes says, noting that he subscribes to the idea that data is a new form of labor and that people are not being fairly compensated. This law is trying to fix that problem. “We’re trying to compensate people at large,” he says.
If this legislation is passed, it could generate hundreds of millions of dollars in annual revenue for the state. Gounardes says the earnings would be put toward educational and workforce programs, including funding for STEAM (science, technology, engineering, arts, and math) education in public schools. It would also go toward workforce retraining courses and digital literacy programs.
The rule would apply to any company that derives profit from controlling or processing personal data, including Facebook, Google, and Microsoft, among many others. New companies, erected within the last three years, will be temporarily exempt from the rule, and those with less than $5 million in revenue will be able to evade it altogether.
In addition to a fee, the law would establish the Office of Consumer Data Protection, a new regulatory body that would create and enforce data protection rules. Data holders and processors will have to register with and submit reports to the OCDP on a regular basis or face fines. Disclosures will include how much data is being collected, how much is given to specific third parties, and how much revenue the company is earning per user.
“To have them report how much revenue they’re generating per person is more important than anything in this, because then you can start to understand what the real value of data is,” says Joe Toscano, cofounder of the consultancy Better Ethics and Consumer Outcomes Network, who advised Gounardes on the policy. “The people who, for lack of a better term, created the attention economy, they set the price and they don’t tell us how much we actually do for them.”
It’s unclear whether this legislation will actively steer companies away from profiting off of consumer data. The law also does not allow consumers to earn money directly off of their own data. Still, such reform may prove popular with residents. In June 2020, Data for Progress found that nearly 80% of New Yorkers approved of a tax on digital advertising companies including Amazon, Google, Facebook, and Microsoft, the latter of which also sells targeted ads using data from Bing and LinkedIn, that could yield $900 million in earnings for the state.
Other governments have already begun experimenting with similar tax programs that focus on digital advertisers, which make up a large chunk of the companies that profit from personal data. Last January, Austria began enforcing a 5% digital advertising tax on companies with online advertising services that earn at least $900 million globally and $30 million in Austria per year. In the U.S., Maryland has passed a digital advertising tax, between 2.5% and 10%, that will scale over time, beginning with companies that earn a minimum of $100 million globally. In the future, companies making at least $1 million off of digital advertising services will have to pay this tax. Both Oregon and Washington have similar measures under review.
Previously, most data privacy laws focused on forcing companies to be more transparent about how they store and handle data, enable consumers to opt out of data collection, and alert them to data leaks. Almost all of them rely on the state to take action on their constituents’ behalf. Illinois is the only state that gives consumers the right to sue companies for using their biometric data in an unauthorized way, though New York could be next. A bill introduced in January would allow individuals the right to take action against companies that misuse their biometric data.
Such laws give consumers more power but don’t appear to make much of a dent in the data economy. A complaint against current data privacy laws is that they don’t do enough to allow consumers to wrest back their data or to stop companies from collecting data in the future. The wave of proposed taxes on companies that deal in data suggests that the data economy is here to stay.