MuniLand – Disruptive Technologies and State and Local Municipal Credits

Last week we wrote about how alternative fuel vehicles and greater fuel efficiency are disrupting transportation funding. Disruptive technologies are also impacting formerly stable tax revenue sources such as landline telephone taxes, hotel taxes and sales taxes. Technology companies such as Airbnb and Amazon have fought to keep their services exempt from new taxes. For example, Airbnb launched a controversial public ad campaign in San Francisco that featured citywide billboards and bus stop posters venting over collecting local hotel occupancy taxes. Airbnb’s campaign backfired, prompting public outrage and forcing the company to issue an apology. Hotel taxes, which are specific to the municipality and jurisdiction, are slowly evolving through the promulgation of laws to capture the tax from new, nontraditional entities in the space. For years, Amazon’s retail business was exempt from collecting state and local sales taxes if the company did not have a brick and mortar presence in the state. At the beginning of the year, Michigan passed legislation called the “Main Street Fairness Act,” which requires large Internet retailers to collect and remit state sales taxes back to the Michigan Treasury. Disruptive technologies, therefore, can create new tax revenue opportunities. One of the newest opportunities to generate additional tax revenue has arisen from “cloud” based activities. In order to grow its tax base, the City of Chicago just passed a 9% tax on “electronically delivered amusements” and “nonpossessory computer leases.”  In other words, the City of Chicago is taxing the “cloud” and applying the tax to individuals downloading their favorite movies or businesses using cloud based infrastructure. Chicago’s move to tax cloud-based activities is the first of its kind, and the impact on corporate and personal property taxes could be meaningful over time. Unlike the federal government, state and local governments are acting quicker to close gaps in fiscal laws and policies that are exposed by new and disruptive technologies.

Source: SNW AM Research