Michael Bologna (Bloomberg Law): States Expand Digital Tax Project to Prediction Markets, Crypto

The Multistate Tax Commission expanded the scope of its digital products work group on Tuesday to include several “alternative taxes” enacted in such states as Illinois, Maryland, and Washington over the past year that impose levies on new features of the digital economy. 

Helen Hecht, the commission’s uniformity counsel, recommended these alternative taxes be confined to a “briefing book,” rather than a recommendations report or a model law.

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Commission counsel Jonathan White noted several of the new digital taxes across states are mired in litigation, which could continue for years.

Some states have adopted digital advertising taxes, including Maryland, Illinois, and Washington. Another group of states has considered taxing businesses characterized as commercial data collectors.

A third group includes levies on social media companies. Chicago has an “amusement tax” on websites, applications, products, and internet platforms that allow users to view, share, and engage with digital content. Separately, Illinois just enacted a social media platform fee.

This year, several states, including Kentucky, Illinois, and North Carolina, launched taxes on prediction markets, which allow players to trade contracts based on the outcome of real-world events.

States are also examining taxes on cryptocurrency and other digital asset transactions.

Illinois became the first state to do so with a 0.2% levy on cryptocurrency users for their “business activity” in the state. Earlier this month, the Digital Chamber filed a lawsuit against the Illinois challenging its authority to impose the tax.