From Likes to Liability: Chicago Introduces a New Social Media Amusement Tax

Chicago enacted a new Social Media Amusement Tax (SMAT), effective January 1, 2026, as part of its Fiscal Year 2026 budget. The SMAT marks a new approach to taxing digital activity at the local level. Rather than focusing on sale or subscription fees, the SMAT looks to user engagement and data collection as the measure of taxable activity. The SMAT is an excise tax based on the number of Chicago users from whom the platform collects consumer data.  

Key Takeaways 

• Chicago has introduced a first-in-the-nation Social Media Amusement Tax (SMAT), effective January 1, 2026.
• The SMAT is an excise tax for certain businesses focused on user engagement that have over 100,000 users located in Chicago per year, equal to $0.50 for each user above the 100,000 user threshold.
• The SMAT is part of a growing trend for state and local jurisdictions to find novel ways to increase their tax base outside traditional taxes such as income and sales and use taxes, but may face Constitutional challenges. 

Overview of the Social Media Amusement Tax  

Chicago’s SMAT applies to for-profit digital platforms that allow users to interact with each other and that generate revenue by collecting and using user data as part of their overall business model.

The tax is aimed at social media platforms where users create profiles, post or share content, and engage with other users. The businesses must also use their activity and data for advertising, analytics, or similar purposes. It is not limited to “traditional” social media companies (i.e. Facebook, Instagram, Myspace) but instead focuses on businesses whose value is driven primarily by user engagement rather than customer sales. 

To be subject to the SMAT, social media platforms must exceed 100,000 Chicago users in a calendar year. Once that threshold is exceeded, the platform will be subject to an excise tax of $0.50 for each user over the 100,000-user threshold, per month. Worth noting is that the burden of proof is on the social media platform where it must prove that a user is not a Chicago consumer. There is a rebuttable presumption that if the consumer has on record or in information available on social media a Chicago mailing address, they are a Chicago consumer.  

What Types of Businesses Could This Apply To? 

The tax will likely apply to businesses such as: 

• Large social networking platforms where users create profiles, share content, and interact with others (i.e., Facebook or LinkedIn),
• Video- or content-sharing apps that rely on user engagement and targeted advertising (i.e., TikTok or YouTube),
• Community or discussion platforms built around user posts, comments, or group interaction (i.e., reddit or X),
• Live-streaming or creator platforms that track user behavior and engagement (i.e., Twitch or Discord), and
• Apps or platforms with strong social features, such as profiles, feeds, sharing, or messaging, even if social interaction is not the platform’s original core purpose (i.e., WhatsApp or Signal). 

Business entities that are part of a controlled group of corporations are treated as single entitles for purposes of the SMAT. For example, META, which owns both Facebook and Instagram, could be subject to the tax on both of those entities.   

What Businesses Are Less Likely to Be Affected? 

The tax generally does not target: 

• Companies that sell goods or services without meaningful user interaction, such as Amazon, Wayfair, or others;
• Platforms that primarily provide email, search, cloud computing, or basic data storage, such as Google or Microsoft Office products;  
• News publishers and similar content providers that do not operate as social platforms, such as the New York Times;
• Businesses that do not rely on user engagement or data-driven monetization;
• Nonprofit organizations. 

Ultimately, whether a specific business is subject to the tax depends on how users interact with the platform and how user data is used, rather than how the company describes itself. Currently, it does not appear that the tax will apply to generative AI companies, such as ChatGPT or Anthropic. 

Who Is Considered a Chicago Consumer? 

Under the language of the ordinance, a “Chicago consumer” is generally defined as a Chicago resident  who uses the social media platform within the city. A Chicago resident is “an individual who is in the City for other than a temporary or transitory purpose or is domiciled in the city.” The ordinance also creates a rebuttable presumption that a user is a Chicago consumer if the individual has a Chicago residential or mailing address. Additionally, if usage data, such as IP address information, indicates use within Chicago, the individual is presumed to be a Chicago consumer.  

For businesses operating across multiple jurisdictions, identifying Chicago consumers is not always simple. Platforms often rely on account information, IP addresses, and device location data to determine where a user is accessing service. The analysis becomes more complicated when users travel, log in from different places, or use VPNs, which can mask or change apparent location data. In those cases, determining user location may be less precise for SMAT purposes. 

Filing and Reporting 

The SMAT is calculated on a monthly basis, with the first required return covering activity from January 2026 through June 2026, due in August 2026. Monthly filing and payment obligations apply thereafter. 

Policy Context and Comparable Digital Tax Approaches 

The SMAT reflects local governments’ increasing efforts to tax digital business models built on user engagement rather than traditional transactions. These efforts have been met by significant pushback by companies; with many challenges focusing on an argument that these laws impede on First Amendment rights.    

 In March of 2026, a trade association with members such as META, Google, Amazon, and TikTok called NetChoice filed a complaint challenging the tax. In its compliant, NetChoice alleged federal preemption under the Internet Tax Freedom Act, as well as violations of the First Amendment, the Commerce Clause, and the Illinois Constitution. This challenge highlights the legal uncertainty surrounding user-based tax models. Separate challenges may arise regarding how Chicago users are identified and sourced for liability and reporting purposes. 

Similar issues have emerged in other digital tax frameworks. Maryland’s Digital Advertising Gross Revenues Tax taxes digital advertising revenue tied to Maryland users. Although Maryland’s tax is revenue-based rather than user-based, it similarly relies on user location to source digital activity to the state. Maryland’s Digital Advertising Gross Revenues Tax was challenged in the Fourth Circuit, which struck down the state’s attempt to bar companies from passing the tax on to consumers. The tax itself remains in effect and is separate from Maryland’s sales tax on digital services. 

Other states have expanded existing tax bases to include digital services more broadly. For example, Washington State taxes digital automated services under its sales tax and business and occupation tax, sourcing transactions to the customer’s location. South Dakota similarly applies sales tax to specified digital goods and services under destination-based sourcing rules. Hawaii taxes certain digital advertising and related services through its General Excise Tax and has proposed applying corporate income tax to certain digital advertising revenue earned by social media platforms. 

Chicago itself has previously extended taxation to digital activity through its Personal Property Lease Transaction Tax which applies to cloud computing, streaming services, and other electronically delivered products. The SMAT reflects a further shift away from user payments and toward user engagement and data collection as the basis for taxation. 

Taken together, these measures illustrate an evolution in how jurisdictions are seeking to align their tax bases with digital commerce. Where previously direct economic activity served as the primary base of taxation, now revenue, transactions, or user presence can be used as proxies if they occur within this jurisdictions’ borders. 

As the SMAT is implemented, additional administrative guidance may further clarify the scope of covered activities and how Chicago consumers are identified for reporting purposes. 

Practical Steps 

While challenges work their way through the courts, companies should take the following steps to comply with the law: 

• Continue compliance - The SMAT remains in effect unless invalidated.
• Confirm sourcing - Review how Chicago users are identified and apply that approach consistently
• Maintain documentation – Retain records for user counts and sourcing determinations
• Assess other exposure - Consider whether other state taxes may apply to your digital services.
• Reassess positions - Update positions as guidance and litigation develop. 

The SMAT is just one part of the increasingly complicated world of taxes on digital activity. If you have questions about this or other attempts to tax digital services will impact you, contact one of our experts below.