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OLYMPIA, Wash. — Several business interests opposed a proposed Washington state tax on the sale of electronic personal information at a legislative hearing Friday.

Rep. Norma Smith, R-Clinton, introduced the bill to put a 3.3 percent business-and-occupation tax on gross receipts from the sale of personal data relating to Washington state residents.

“I believe it’s the right thing to do in a 21st century economy. It’s a modernization of our tax code.  … The average Washingtonian, the average American — their information is being sliced and diced 3,000 different ways, and being bought and sold,” Smith told the House Finance Committee.

Rep. Norma Smith. (Washington State House Photo)

The House Technology & Economic Development Committee has already recommended passage of the bill.

Smith contended the bill would help the state government track a significantly under-watched part of the cyber-economy, the sale of personal data to corporations. This personal information includes postal and email addresses, online browsing habits, physical descriptions, driver license information, identification numbers, and other reports on financial, medical, employment and education information. The data can be used for marketing campaigns, and by the insurance, credit and healthcare industries.

A 3.3 percent B&O tax on data sales would put $18.9 million into the state’s coffers in the 2017-2019 fiscal biennium and $57.9 million in 2019-2021, according to state government calculations. And Smith said the systems set up so small businesses won’t have to pay the proposed 3.3 percent B&O tax.

Smith contended that corporate sales and tax information on the sale of personal data can be tracked and verified. Her proposed tax system “is transparent. It is fair. And most importantly, it’s simple,” she said

Smith pointed to a 2013 Congressional report on the public data broker industry as an argument to increase regulation of that field. Beside taxing the industry, such a system would prove a little public peek into that largely hidden world, she said.

“Since consumers generally do not directly interact with data brokers, they have no means of knowing the extent and nature of information that data brokers collect about them and share with others for their own financial gain. … Their customer base encompasses virtually all major industry sectors in the country in addition to many individual small businesses,” the 2013 report said.

One section deep in the 2013 report reads:

Data brokers collect a huge volume of detailed information on hundreds of millions of consumers. Information data brokers collect includes consumers’ personal characteristics and preferences as well as health and financial information. Beyond publicly available information such as home addresses and phone numbers, data brokers maintain data as specific as whether consumers view a high volume of YouTube videos, the type of car they drive, ailments they may have such as depression or diabetes, whether they are a hunter, what types of pets they have; or whether they have purchased a particular shampoo product in the last six months.

Data brokers sell products that identify financially vulnerable consumers. Some of the respondent companies compile and sell consumer profiles that define consumers in categories or “score” them, without consumer permission or knowledge of the underlying data. A number of these products focus on consumers’ financial vulnerability, carrying titles such as ‘Rural and Barely Making It,’ ‘Ethnic Second-City Strugglers,’ ‘Retiring on Empty: Singles,’ ‘Tough Start: Young Single Parents,’ and ‘Credit Crunched: City Families.’

“One company … sells a marketing tool that helps to ‘identify and more effectively market to under-banked consumers’ that the company describes as individuals including ‘widows’ and ‘consumers with transitory lifestyles, such as military personnel’ who annually spend millions on payday loans and other ‘non-traditional’ financial products. The names, descriptions and characterizations in such products likely appeal to companies that sell high-cost loans and other financially risky products to populations more likely to need quick cash, and the sale and use of these consumer profiles merits close review.

Representatives of TechNet, the Association of Washington Business, the Consumer Data Industry Association, the Washington Bankers Association and CompTIA testified against Smith’s bill Friday.

They pointed out that the state’s current B&O tax on service businesses is 1.5 percent, meaning that Smith’s bill’s rate of 3.3 percent would more than double that tax on the sale of personal data. They also argued that this proposed B&O tax increase would lead to data brokers leaving the state, while not helping to protect people’s private information.

Tom McBride, representing CompTIA, said a 3.3 percent tax would mean data sellers would pay the highest B&O tax rate in the state. Joanie Deutsch, executive director of TechNet, said no other state has a B&O tax specifically on personal data sellers. Dennis Eliason, representing the bankers association, said this would increase credit bureau costs.

The associations and companies argued that the definitions and language in Smith’s bill are too broad, which would handicap interpreting passages in order to comply with the new tax rules.

“This would be difficult to voluntarily comply with — to know when you are tripping over the wire. No other state is doing this,” said Eric Lohnes of the Association of Washington Business.

Washington Department of Revenue officials said a company would have to pay the B&O tax, regardless of whether it is physically located in Washington. A company physically located out-of-state would be liable for the B&O tax if it sells $267,000 of Washington-related personal information, according to the revenue department.

To be held responsible for paying this tax, a company would have to meet only one of the following criteria:

  • Sell more than $267,000 worth of Washington-related information a year.
  • Have a Washington annual payroll of more than $53,000.
  • Own more than $53,000 worth of Washington property.
  • Have at least 25 percent of the payroll, sales or property in Washington.
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