Perry Cooper (Bloomberg Law): NetChoice Files First Case Over Chicago’s Social Media Tax
The tech industry trade association NetChoice filed the first challenge to Chicago’s first-in-the-nation tax on social media companies Friday, telling a state trial court the levy is preempted by federal law and violates the US and Illinois constitutions.
The complaint is asking the Illinois Circuit Court of Cook County to invalidate the tax, which will apply to companies like X Corp. and Facebook parent Meta Platforms Inc.
Taxpayers have had their eye on the levy—and anticipated legal challenges—since it was passed at the end of last year. Other jurisdictions could be dissuaded from adopting similar taxes if NetChoice’s challenge is successful.
The social media amusement tax applies to any business that gathers data on more than 100,000 Chicago consumers in a calendar year, and is calculated at $0.50 per consumer in excess of 100,000 in a given calendar month.
In Friday’s complaint, NetChoice said Chicago’s tax is preempted by the federal Internet Tax Freedom Act, which bars state and local governments from imposing “discriminatory taxes on electronic commerce,” because it only applies to online social media businesses.
The tax violates the First Amendment by excluding news, education, and public safety websites based on content, the complaint alleges. Laws that single out the press for special treatment are subject to some degree of heightened scrutiny, NetChoice said.
The association also said the tax violates the US Constitution’s commerce clause because double taxation would result if every jurisdiction imposed a similar tax. And it violates the state constitution’s restrictions on taxes levied against certain occupations, it said.
Additional & Previous Coverage:
- Cameron Browne (Tax Notes): NetChoice Alleges Chicago’s Social Media Tax Violates ITFA
In a March 13 complaint in NetChoice v. Chicago filed in the Illinois Circuit Court of Cook County, NetChoice argues that Chicago’s social media tax should be declared invalid because it is preempted by the ITFA, is an unlawful occupational tax under the Illinois Constitution, and violates the due process and commerce clauses of the U.S. Constitution.
