We’ve heard it time and time again: Data is the new corporate currency. As the era of Big Data has unfolded, it’s only gotten truer. In 2016, the average company managed 162.9 terabytes (TB) of data. Now, in 2024, roughly 2.5 quintillion bytes worth of data are generated each day, with over 44 zettabytes of data in the entire digital universe. And, hard as it may be to fathom, those figures are expected to grow even larger with the mainstream adoption of generative AI (GenAI).
GenAI thrives on data, both the creation and the dissemination of it. Every keystroke that writes a new machine learning model brings triple the data into the virtual ether. GenAI solutions generate, organize, and operate on data, and – increasingly – businesses’ ability to successfully manage and manipulate that data will define their success in the marketplace.
But as jurisdictions around the globe have been tweaking around the edges trying to change how corporations are taxed, these massive corporate data troves provoke an interesting thought. Amid a jumble of value-added taxes, digital taxes, and corporate minimum rates, some are arguing the solution may be as simple as shifting the tax burden to one of corporations’ most valuable resources: data. Is it feasible? Could it work? And what would it look like?
How Much for a Byte?
Taxing data would seemingly be the next logical step. If asked, corporate leaders would likely admit that their customer acquisition costs, long-term modeling and forecasting processes, and the services they provide have been both streamlined and improved by acquiring as much customer data as possible. There’s no doubt data is valuable, but just how valuable is the question.
On the surface, not all bytes hold the same value. Data that can glean insights into a customer’s purchasing habits, for example, would appear to more valuable than other random tokens. Or are they? There are plenty of media buyers who can cobble together a persona from seemingly disparate data points, especially with the help of GenAI.
And therein lies the problem. Who’s to say what’s random and what’s insightful? What’s useful to a company that sells consumer products might not be to a healthcare data firm, and vice versa. What everyone can agree on is there is a lot of grey area here for legislators to debate. And too much nuance never leads to perfect lawmaking.
Assigning a Value
That hasn’t stopped regulators from trying. There have been ideas debated by legislators on how jurisdictions could assign value to data. In 2021, a bill in the New York State Senate proposed a tiered, per-head monthly excise tax on data collectors, starting at five cents per month per NY-based consumer.
“It’s been said of social media that if you’re not paying for it, then you’re the product, and when it comes to today’s internet, that’s truer than ever,” said Senator Liz Krueger, sponsor of the bill. “Every time New Yorkers visit social media sites or shop online, their data is being harvested for profit, often without their having any idea it’s happening. Big companies are making a fortune from New Yorkers’ data – it’s time for New Yorkers to get a little something in return.”
Similarly, legislators in Massachusetts introduced a series of bills in early 2023 that would have implemented a tiered tax on data collection, exempting the first $1 million in revenue, but increasing rates based on the number of consumers.
Is that a fair way to do things? Maybe, but then again, this is largely unchartered territory. What could look like a fair deal today may ignore a huge revenue stream or even become financially unviable down the road. And those realities carry a degree of uncertainty that most corporations just simply aren’t comfortable living with.
The International Conflict
As more and more legislators consider drafting these proposals, it’s worth noting just how much they vary from state to state. And undoubtedly, if this idea truly went global, data taxes would almost surely fluctuate from country to country. That’s another cause for concern.
From base erosion and profit shifting (BEPS) to digital taxation, the Organization for Economic Co-operation and Development (OECD) has been through the ringer the last decade trying to consolidate and harmonize a mishmash of disparate tax rules that often carry huge implications – ranging from financial to reputational – for the companies that are trying to navigate these complexities. Aligning all jurisdictions is virtually impossible, but it’s what would likely be required for a broad data tax to work.
The Next Steps
We’re barely into the first chapter of this issue and there will be plenty more to be written on it in the coming years. For corporations looking to protect themselves in the short term, the key is vigilance and preparation. Companies will have to be on the lookout for any states or nations that decide to dive into a data tax head-first. And as they retain and create new data from GenAI initiatives, corporations will have to be sure they understand the data they have and the value it drives.
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