Strategic Surrogates or Sad Sinners: U.S. Taxation of Bartering in Digital Services

American Business Law Journal, Volume 58, Issue 4, Winter 2021

30 Pages Posted: 28 Sep 2021

See all articles by Mark J. Cowan

Mark J. Cowan

Boise State University -Department of Accountancy

Joshua Cutler

Boise State University, College of Business and Economics, Department of Accountancy

Ryan J. Baxter

Boise State University, College of Business and Economics, Department of Accountancy

Date Written: September 27, 2021

Abstract

The COVID-19 pandemic caused both a surge in technology use and a deterioration in government finances. At the same time, big tech companies are under scrutiny by lawmakers for tax avoidance, antitrust issues, and other concerns. These realities call for governments to reassess tax policy towards tech companies and for tech companies to reassess legal strategy towards taxes. State and federal governments’ tax bases are eroding because of the non-cash, barter nature of modern transactions. When a taxpayer uses “free” digital services like email, social media, or search engines, she pays via access to her personal data or attention. From a legal and policy standpoint, these barter transactions should be taxed just as if cash had changed hands, but because it is not practicable to identify, value, and tax the data and time of each user, they have escaped taxation, giving many tech companies an unintended tax advantage. To address this unfairness, this article proposes a surrogate tax, where the tech company acts as a proxy to pay the tax that is technically the liability of its users. In contrast to Digital Services Taxes (DSTs), which have been the main focus of policymakers and the extant literature, surrogate taxes adhere closely to standards of good tax policy, providing an administrable means of capturing untaxed digital barter while advancing fairness across the industry’s business models. From a legal strategy standpoint, this article argues that tech companies themselves should support surrogate taxes, to avoid facing more onerous, “sin”-like taxes, such as DSTs.

Keywords: Taxation, Technology Companies, Strategy

JEL Classification: K34

Suggested Citation

Cowan, Mark J. and Cutler, Joshua and Baxter, Ryan J., Strategic Surrogates or Sad Sinners: U.S. Taxation of Bartering in Digital Services (September 27, 2021). American Business Law Journal, Volume 58, Issue 4, Winter 2021, Available at SSRN: https://ssrn.com/abstract=3931900

Mark J. Cowan (Contact Author)

Boise State University -Department of Accountancy ( email )

1910 University Drive
Boise, ID 83716
United States

HOME PAGE: http:///www.boisestate.edu/cobe-accountancy/department-of-accountancy/directory/mark_cowan/

Joshua Cutler

Boise State University, College of Business and Economics, Department of Accountancy ( email )

Boise, ID
United States

Ryan J. Baxter

Boise State University, College of Business and Economics, Department of Accountancy ( email )

Boise, ID 83725
United States

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