TaxProf Blog

Kathleen Thomas (UNC Law) presents “Taxing Attention” at Boston College Tax Policy Workshop today:

The rise of social media platforms and other digital businesses has transformed the economy. Companies like Meta and Alphabet have developed a booming industry where advertising revenue drives profits and we, the consumers, provide the product. But what, exactly, are we selling?

For the last decade, the legal and broader academic community has resoundingly categorized this new economy as one focused on data. Consumers use digital platforms like Facebook for “free,” but the platform collects data about the consumer in the process, which is then monetized by selling advertisements. In the realm of tax law, a growing body of work grapples with the complex issues created by the rise of big data. To keep up with any meaningful shift in the economy, a tax system must be able to locate, measure, and subject economic transactions to tax. But digital data is hard to pin down in any meaningful way for tax purposes. How much is our data worth? Where is digital data located geographically? These issues have stymied tax experts across the globe for years.

This Article advocates a fundamental shift in the legal analysis surrounding this new digital economy –particularly the tax law analysis. Specifically, it argues that the primary commodity that is sold to digital platforms by users is not their data; it is their attention. In making this claim, the Article draws on a nascent body of work by economists and other scholars who have argued that the modern economy is more appropriately described as an “attention economy,” rather than one centering on data. The Article argues that transactions between social media companies and users should be reframed as the sale by users of their attention in exchange for the platform’s services. Although data collection is important to the platforms’ businesses, the advertisers ultimately pay for people to pay attention to their ads, not to acquire raw data.

Reframing social media transactions as a sale of consumer attention makes the tax consequences of these exchanges significantly less complex, because the transactions do not involve the sale of a novel intangible asset (digital data). The sale of attention is simply the sale of one’s time—a type of transaction that existed long before digitization. After exploring the tax treatment of the sale of user attention to social media platforms, the Article argues that the monetization of user attention by social media companies merits a policy response. To that end, it proposes a Pigouvian tax on platforms to account for the negative externalities that social media imposes.