SALT LAKE CITY — The Utah Taxpayers Association is suing the state over a new tax on targeted digital advertising, alleging it violates federal law and would ultimately impact Utahns.
But the sponsor of the law that enacted the special tax questions who's paying for the lawsuit.
"We are taxing Big Tech," Sen. Mike McKell, R-Spanish Fork, told FOX 13 News in an interview Tuesday. "That’s what it does."
Sen. McKell was the sponsor of Senate Bill 287, which passed the Utah State Legislature earlier this year. It imposes a 4.7% tax on companies who serve up digital ads. Companies are taxed if they make $100 million worldwide, or get at least $1 million from ads in Utah.
The tax is a part of Utah's ongoing battle with social media platforms. The state is suing major digital companies alleging they have crafted addictive algorithms and harmed the mental health of Utah's youth.
"This tax is derived because they’re mining your data, they’re taking your data and targeting our kids," Sen. McKell said.
The money from SB287 was to be earmarked for youth programs. A legislative fiscal analysis found it could generate as much as $15 million in its first year.
But the Utah Taxpayers Association, a tax watchdog group, argues the law violates federal law. Specifically, the Internet Tax Freedom Act, which essentially says you can't tax something on the internet that isn't taxed in the real world.
"We're concerned that Utahns are going to be the ones paying this tax," Utah Taxpayers Association President Billy Hesterman told FOX 13 News. "We know as much that companies said at the Capitol during the session that if this tax goes through, they’re going to pass it on to Utah customers."
Sen. McKell insists it wouldn't filter down to small businesses.
"This is big companies," he said, adding: "This is not going to impact the small businesses in the state of Utah."
Sen. McKell questions how the Utah Taxpayers Association is funding its litigation over his bill. He said he suspected they are being funded by companies that would directly be impacted by the tax. Sen. McKell pointed to a moment during the legislative session when a lobbyist for an internet advocacy group who spoke against the bill in a committee hearing could not name who her funders were.
"I roll my eyes. I think the Utah Taxpayers Association, I think they’ve done some really good work over the years," Sen. McKell said. "But let’s just be really clear: The Utah Taxpayers Association is 100% representing Big Tech in this lawsuit."
Hesterman would not disclose the group's donors, but said the Utah Taxpayers Association's board felt the litigation was important to pursue.
"Tech companies are members, utility companies are members, individual taxpayers are members. We are very proud of our membership, that it’s a good swath of the state of Utah," he said.
It is unusual to see the Utah Taxpayers Association and the Republican-supermajority Utah legislature at odds. In the past, the group has honored individual lawmakers for being a "champion" to taxpayers by reducing tax burdens or enacting tough truth-in-taxation laws. The group both lobbies for and against tax bills on Utah's Capitol Hill.
"It’s not exactly where I’m comfortable with, to be like, 'Hey friends who have worked so hard for taxpayers, we need to challenge you,'" Hesterman said. "But to uphold the mission we have as an organization? There are times when friends have to look at each other and say, 'Hey, I think you missed this one.'"
The targeted advertising tax wouldn't take effect until 2027. The lawsuit asks for an injunction blocking it from being enacted.
"I feel like we’re on good solid footing as I look at the litigation," Sen. McKell said Tuesday. "We are confident right now. I think we’re in a good spot."
Read the lawsuit here:
