Big tech companies sue to block Chicago's new social media tax

A coalition of the world’s largest tech companies is suing to block Chicago’s new tax on social media giants like TikTok, Facebook and X, claiming the city’s first-of-its-kind, per-user levy tramples over the First Amendment rights of major corporations that contend they’re part of the free press.

The lawsuit filed Friday in Cook County Circuit Court by the tech trade group NetChoice takes aim at the social media tax proposed by Mayor Brandon Johnson and retained in the budget ultimately approved by a recalcitrant City Council last fall.

Companies started paying the tax last month at a rate of $0.50 per user after the first 100,000 Chicagoans who log onto Snapchat, Reddit, Instagram and other popular sites, with city officials projecting a $31 million annual windfall for future mental health programs.

Big Tech wants to nip the nation’s first-ever enacted social media tax in the bud as several states, including Illinois, consider similar measures to wring money from companies to offset the public health threat many experts say their platforms can pose, especially for young people.

But social media companies have long argued they shouldn’t bear all the blame for a youth mental health crisis, and in their suit, they say they can’t be targeted for taxation any more than a newspaper can.

“They are singling out certain publishers for disfavored taxation for having a broad audience, and the Supreme Court has rejected that,” said Paul Taske, co-director of the NetChoice Litigation Center. “This tax and taxes like it are essentially a penalty on publishing popular speech. The city of Chicago is attempting to penalize popular services for the fact that they’re reaching broad audiences, and that is unconstitutional.”

Experts previously told the Sun-Times the city tax was on shaky legal ground, largely based on a 1983 U.S. Supreme Court decision that blocked a Minnesota state tax on newspapers for paper and ink purchases beyond a $100,000 yearly threshold. Former Justice Sandra Day O’Connor wrote for the court that the tax “singled out the press for special treatment” without justification.

Such precedent is "not limited to the journalistic press," according to the NetChoice suit, which cites another Supreme Court ruling that First Amendment protections extend to "every sort of publication which affords a vehicle of information and opinion."

Lawmakers in other states considering similar legislation have likened taxing companies for the data they collect from social media users to taxing mining companies for the minerals they extract from the earth. Taske says that’s “not a real response to the problems that these taxes pose. Fundamentally, they’re taxes on speech.”

Johnson has argued that social media companies that have been allowed to “collect our data and sell it for profit” have implemented “more and more aggressive strategies” and algorithms to get people “addicted” to social media. In 2024, former U.S. Surgeon General Vivek Murthy proposed warning labels for social media sites like those on packs of cigarettes.

The mayor’s office has categorized it as an amusement tax, which NetChoice rejects because it’s “not calculated based on consumers’ use of social media.” Their suit contends it’s based on the data the social companies collect from users and monetize just like “myriad other online services collect data from their users — and those services are left untaxed.”

Gov. JB Pritzker included a similar tax in his state budget proposal last month to push back against social media sites that “profit off of surveilling youth, creating addictive algorithms, and abandoning their responsibility to keep kids and consumers safe,” according to his office.

Pritzker’s plan — which the Illinois General Assembly will consider over the next two months before passing a budget by the end of May — would charge the companies $0.10 per user from 100,000 up to 500,000 users; $40,000 plus $0.25 per user up to a million; and $165,000 plus $0.50 per user over a million. If approved, it’s expected to generate some $200 million for the state.

The governor's office has insisted on calling it a “platform fee” rather than a tax, arguing the distinction is that payments would be based on a flat number of users rather than directly tied to company revenue.

Taske said that “obfuscates the fact that it would operate like a tax: trying to collect money for a particular thing,” in this case an audience consuming speech online.

“This should make them think twice about proceeding,” Taske said.