Illinois Social Media Tax | Illinois 2026 Budget

Illinois’ new social media taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. was in the works for months, but it has the appearance of something lawmakers hit “post” on too soon. It’s not just that social media taxes have very little justification, though that’s certainly true. Nor is it just that the new tax opens the state up to costly litigation it has a very good chance of losing, though that’s true as well. It’s that the whole thing looks like something dashed off with very little thought. Illinois plans to impose a complicated, legally fraught new tax based on a few pages of confused, contradictory, and almost laughably incomplete legislative text embedded in the new budget.

Among the questions the budget writers failed to answer: what, exactly, is being taxed?

Based on subsection B, there’s a monthly fee (tax) on “the number of Illinois users from whom the social media platform collects data within a month.” But for some reason, this is based on a monthly report obligated in subsection A, reporting the “average number of monthly users of the platform located in the State of Illinois.”

The “average number of monthly users” is perplexing; in any given month, someone is either a social media user or they are not. Over a longer period of time (say, a year), there might be an average number of monthly users, but there can’t be an average number of monthly users within a specific month. That, however, is a trifle. The real problem is that virtually nothing is defined.

Let’s begin here: what is a user?

This isn’t a philosophical question. It’s an eminently practical one. Is a user a person or an account? If a person has multiple accounts on the same social media platform, does each account constitute a separate user, or is the person one user? To the extent that those accounts are not linked and social media companies lack identifying information on the owners of free accounts, what information, if any, may they use to associate multiple accounts with a single person?

If someone has accounts across multiple services operated by a single company—for instance, Facebook, Instagram, and (depending on how broadly “social media” is defined) Messenger and WhatsApp accounts—is each taxed separately, or is the person treated as a single user across multiple related services? And if an account is shared by multiple people (family members, a business account, etc.), is that one user or multiple? If the latter, how should a social media company attempt to ascertain how many users are on the account?

Indeed, is an account even required? If someone reads a Reddit thread without an account, do they count as a user? If someone has multiple accounts, could tax be imposed on all of them even if the person only accesses a social media site from one of them (or without logging in at all)? The law defines a social media platform, in part, as a service that permits people to become registered users or create profiles, but it (1) seems to distinguish registered users from the creation of profiles, (2) never explicitly says that registration is necessary for taxation, and (3) omits the modifier “registered” in every place where the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. is defined.

Now let’s refine that: what is an Illinois user?

Is it a user who lives in Illinois, even if, for the month in question, they’re out of state and accessing their account from elsewhere? Is it someone with a home or billing address in Illinois who also accessed their account from Illinois during the month? Would it cover a non-resident who accessed their social media accounts from Illinois at some point during the month, perhaps during a layover at O’Hare or while in Chicago for a convention?

And whatever definition is used, how would their Illinois connection be determined for tax purposes? With a paid account, a billing address should be on record, but most social media accounts are free, few have mailing addresses expressly attached to them, and some are wholly anonymous. Should social media platforms rely on IP addresses, despite their limitations? If so, if a person’s IP usually resolves to Ohio but pings in Illinois occasionally, and assuming for now that Illinois does not intend to tax non-residents when they’re in the state, can the social media company exclude that user? Do they have to document anything, and if so, to what degree can they protect users’ privacy?

The next step: what constitutes an Illinois user from whom a platform collects data?

What sort of data are we talking about? Any interaction with a social media website (or any website) involves some exchange of data: IP addresses, search queries, clicks and interactions, social media content viewed or posted, etc. Presumably that’s the point: any account that’s active during the month is taxed. But does it end there?

If someone opens Instagram but not Facebook some month, and Meta shares data across its platforms, did both social media platforms collect data on that user? Depending on how “user” is defined, are both accounts taxed? What if someone has an account on Reddit or YouTube, and accesses one of those sites but never logs in? Some metadata that could be tied to a user is still collected. Is that taxable?

What if someone has a dormant account but browses to the social media site without logging in, or for that matter, what if someone who doesn’t even use a given social media platform navigates to a separate website that serves ads from or offers login services associated with a social media platform, thus resulting in some of their data passing through to that platform? Based on the data collection, do they count as a user?

Another question: what constitutes a social media platform?

Here, we at least have an attempt at a definition, unlike with users, which the new tax never tries to define. A social media platform is a website or internet medium that “permits a person to become a registered user, establish an account, or create a profile,” permits sharing and viewing of user-generated content, and “primarily serves as a medium for users to interact with content generated by other users of the medium.” This captures Facebook, X, LinkedIn, Instagram, YouTube, and Reddit, among others. But how about Yelp, Nextdoor, Substack, GitHub, WhatsApp, or Telegram? The language is unclear.

The problems don’t end there. The tax is $6 per user per year, denominated as $0.50 per user per month for large social media platforms, and lesser amounts per user for smaller platforms. Starting in 2028, these amounts are adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin, but the inflation indexation provision is broken. According to the new law, the taxes are to be “increased by an amount equal to the annual unadjusted percentage increase in the Consumer Price Index for the 12-month period ending with the March preceding each July 1, including all previous adjustments, rounded down to the nearest whole number.”

The first problem is survivable: ending the period in the March preceding July 1, for a January 1 adjustment, makes very little sense. It appears likely that the budget writers did a sloppy cut-and-paste job from another inflation-adjusted provision for which the adjustment is made on July 1, not January 1. This makes the inflation adjustment a bit more stale than ideal, but while almost certainly an error, it doesn’t break the whole system. The next problem does.

The inflation adjustment is to be rounded down “to the nearest whole number.” The drafters surely meant “to the nearest cent,” but that is not what they wrote. If the tax begins at $0.50, and inflation is, say, 3 percent, then the inflation adjustment yields $0.515. Now round that down to the nearest whole number, and what do you get?

If we read this as rounding down just the inflation adjustment, then $0.015 rounds down to $0, and the tax remains $0.50 per account. But the text contains a further point of ambiguity: “increased by an amount” clearly references the increase rather than the total, but “including all previous adjustments,” while perhaps intended to extend the inflation adjustment for the whole period rather than simply adjusting from the prior adjustment, seems to reference the resulting number, $0.515. Round that down to the nearest whole number, and the tax is now $0. Given the patent absurdity of these results, state officials may believe they have the authority to fix this through regulations, but the errors speak to the slapdash way policymakers adopted a significant, complex new tax.

We’re still not done.

The tax includes a penalty for noncompliance, and it is astonishing: “If a social media platform fails or refuses to pay the monthly fee to the Secretary of State, there shall be added to the fee an amount equal to 100% of the unpaid fee and any penalties each month until the fee is paid.” Here, too, we have ambiguous drafting, but if the unpaid fees and penalties compound each month, the penalties for nonpayment would be astronomical. Also unclear: does this only apply if a company fails to file at all, or would it also apply if the Secretary of State’s office objects to how they calculated “Illinois users” and believes that they failed to pay the monthly fee for some number of users? Bear in mind that at some point, fines become unconstitutionally excessive.

Then there’s the prohibition on “vary[ing] the cost of access, features, services, or in-app purchases for any user based on the geographic origin of the user’s login, activity, or account registration for the purposes of recouping the fee under this Section.” If a service has any pricing differentials for any services, potentially including selling business features or serving ads, those could be subject to scrutiny as to whether the variations exist with the intent of recouping some of the tax.

This extraordinary prohibition is enforced by creating a private cause of action, allowing any individual alleging a violation to bring suit in circuit court. The provision overrides any arbitration agreements, which seems likely to run afoul of the Federal Arbitration Act. Also unclear: is this truly a prohibition on price-setting or on identifying the tax as the reason for price increases or other restrictions? The former raises Commerce Clause questions: price controls aren’t innately unconstitutional, but they can become unconstitutional depending on their design and implications for interstate commerce. The latter clearly violates the First Amendment.

The new law faces other legal hurdles as well. The federal Internet Tax Freedom Act prohibits discriminatory taxes on e-commerce. Because social media platforms facilitate speech, targeting one specific venue for speech while exempting others makes the tax vulnerable on First Amendment grounds, as courts have repeatedly struck down taxes that single out particular media for selective taxation. Audience-based discrimination is also a First Amendment issue and could be implicated by the tax’s exemptions and lower rates for smaller social media platforms. Inadequate definitions around accounts, users, and taxable social media services raise Due Process concerns. The difficulty of properly identifying Illinois-based users gives rise to Commerce Clause challenges.

Further complicating matters, the whole thing is structured as a fee even though it’s clearly a tax, and it’s run through the Secretary of State’s office rather than the Department of Revenue. The new tax is a legal minefield, forcing the state to defend the tax against strong constitutional challenges on multiple fronts.

Economically, the tax doesn’t make much sense, either. Account-based taxes (if that’s what this is) incentivize social media companies to put more services behind subscription paywalls, prohibit multiple accounts, require identity verification, gather and share additional location data, reduce creator monetization, and raise prices on in-state advertising. It turns the internet into more of a “walled garden,” since free accounts become increasingly costly to provide. This disproportionately affects lower-income users who rely on free, ad-supported services.

The concept of a social media platform tax had been in the governor’s budget proposal for months, but language was only provided with the enactment of the budget early the morning of June 1st. Lawmakers and the public had no time to review the text before the vote. And while the governor’s team had months to work on the idea, they seem not to have made good use of their time, because the new tax is silent on crucial points and contains a litany of errors and inconsistencies across a few short pages of text. It would be hard to take the new tax seriously, except that it’s now Illinois law.