In 2025, U.S. cities faced a host of revenue challenges. Heading into 2026, these pressures are producing legal action and policy experimentation, as localities shore up budgets with restructured taxes and fees.
Among these novel tax instruments is Chicago’s new social media amusement tax (SMAT) that took effect on January 1. Setting the SMAT’s unfortunate acronym aside, are cities becoming the new (tax) laboratories of democracy—or will political resistance and litigation curtail this wave of municipal experimentation? More below the fold.
Chicago’s SMAT taxes certain social media businesses on their collection of consumer data, to the tune of $0.50 per Chicago consumer over a baseline exemption of 100,000 such consumers per year. The SMAT is due monthly on users in excess of the same numeric threshold. In spirit, the SMAT sits alongside Chicago’s controversial—and widely emulated—move to extend its amusement tax to streaming media.
Chicago Mayor Brandon Johnson has framed the SMAT in Pigouvian (and police power) terms: “[Social media] has become a serious public health issue . . . . And just like we tax other addictive vices that are bad for our health like nicotine and tobacco, it is far past time we treat social media companies the same way.” Minnesota and Washington have floated similar proposals—explicitly taxing large platforms that collect consumer data—which highlights that Chicago is not alone in viewing social media as a potential tax base.
Implementation, however, is a work-in-progress. Pressure points include the ordinance’s definition of “social media business,” as well as rebuttable presumptions about who is or isn’t a “Chicago consumer.” Complex corporate structures and the ordinance’s brisk remittance schedule may complicate the SMAT’s thresholds and administration. Further guidance is expected.
But for now, the early story is not just administration—it’s litigation risk. Potential challenges could range from federal statutory preemption arguments aimed at discriminatory e-commerce taxation to First Amendment claims. Bloomberg Law has deeper coverage.
Michael J. Bologna, Chicago Social Media Tax Likely to Spur Big Tech Legal Challenge, Bloomberg Law (Jan. 20, 2026) (quoting, among others, Darien Shankse (UC Davis)):
“The ITFA [Internet Tax Freedom Act] violation is crystal clear and so is our expected path to the courthouse,” said Stephen Kranz, a tax partner in the Washington DC office of McDermott Will & Schulte. . . .
A swift filing in Cook County Circuit Court is likely, said David Dorner, a state and local tax partner in the Chicago office of Reed Smith LLP. . . .
[Jeffrey] Friedman[, a state and local tax partner in the Washington office of Eversheds Sutherland LLP], said the tax is preempted under the US Constitution’s Supremacy Clause and ITFA as a discriminatory levy on electronic commerce . . . . He also pointed to a potential First Amendment violation . . . .
“I think there is quite a good argument that what Chicago is doing is not preempted by the ITFA because it is not discriminating against electronic commerce. It’s simply modernizing its amusement tax to incorporate a modern form of amusement,” [Darien] Shanske said. “That’s sensible as a matter of policy and law.”
Related TaxProf Blog coverage:
- Sports Betting Alliance Sues Chicago over Proposed Licensing, Tax (Jan. 1, 2026)
- Citadel Leaves Chicago Tower as City Faces ‘Job Killer’ Tax (Dec. 29, 2025)
- Chicago Payroll Tax Draws Opposition From City’s Business Heads (Dec. 8, 2025)
