The Big Story: States continue adding to tech regulatory landscape risking additional burdens for startups
State legislative sessions are in high gear this spring, advancing tech legislation and threatening to grow a patchwork of varying rules startups must navigate as they grow. This week, for example, the Washington Senate passed a bill governing health information and other personal data. Their effort joins several other states putting forward proposals aimed at privacy and data security, online safety, and content moderation—that each will have noticeable ripple effects for startups.
Well over 40 states have considered privacy legislation this year, and several have made significant progress toward becoming law. Late last month, Iowa became the latest state to enact its own comprehensive privacy law, joining California, Colorado, Connecticut, Utah, and Virginia as states with unique privacy laws on the books. Several other states, including Texas and Indiana, are rapidly approaching passing their own laws and adding to the growing current patchwork of state privacy laws. As we highlighted in a recent report, the patchwork of state privacy laws is weighing on startups, costing some startups $60,000 or more for each new state law enacted.
In addition to comprehensive privacy bills, state policymakers are also considering related legislation aimed at improving children’s safety online. Late last month, Utah Gov. Spencer Cox signed two bills into law that will require in scope companies to verify the ages of all users in order to comply with the law. Several states are advancing “age-appropriate design codes”—following similar legislation enacted in California and first put into place in the U.K. Many in the startup ecosystem are unsure of how to comply with the codes, and California’s law is currently facing a legal challenge as a result of concerns about its constitutionality.
Policy Roundup:
Britain digital tax could become permanent in lieu of global tax deal. A 2020 digital services tax imposed by Britain on large tech companies but passed through to end users like startups could soon become permanent, absent adoption of the Organization for Economic Co-operation and Development’s (OECD) global tax deal. The two percent tax on revenue applies to companies with over 500 million pounds in revenue that operate social media platforms, search engines, or online marketplaces—tools often used by startups to build and grow their own companies. The global tax deal would create certainty for U.S.-based startups, but implementation is still hitting road bumps—including pushback from the U.S. Congress—as officials attempt to bring their countries’ policies in line with the deal.
Bipartisan group reaffirms importance of digital trade leadership. Following their committees’ recent hearings examining the Biden Administration’s 2023 Trade Agenda, a bipartisan, bicameral group of lawmakers have introduced resolutions underscoring the need for “strong, inclusive, and forward-looking rules on digital trade.” As Engine relayed in statements to those committees, smart digital trade policies are “critical to bolster the global competitiveness of U.S. startups,” are necessary “to ‘unlock’ America’s renowned startup ecosystem,” and will further “the deployment of software and services around the world.”
Maryland digital tax law heads to court. Maryland’s appeal to reinstate its tax on digital advertising is set to be argued at the state’s Supreme Court next month, and industry groups are weighing in to say it should remain struck down because of the law’s unconstitutional impact on the technology sector. Maryland’s tax on gross revenues from digital advertising services—which was first adopted over the governor’s veto in 2020—went into effect in January 2022 and would apply an excise tax to gross revenue resulting from digital advertising. The tax is intended to target large tech companies, but an agreement with the state enables the tax to be passed through to their customers—often startups and other small businesses who utilize low-cost advertising and other services to reach potential customers. In October of last year, a Maryland judge struck down the tax, declaring it unconstitutional and a violation of the Internet Tax Freedom Act.
Foundational Internet law critical for creators, users online. In a blog post this week we discussed how changes to Internet laws could threaten the creators and users on platforms—and why they should be paying attention. Last month’s House hearing with TikTok CEO Shou Zi Chew focused on content moderation and the most troubling examples of bad things that happen online. And while harmful content does exist online, lawmakers often miss the overwhelmingly positive ways that people all over the country and world use the Internet every day to connect, share, learn, entertain, and more. Changing the frameworks underpinning the Internet ecosystem will limit that connecting and sharing and could cause more harm than good.
Startup Roundup:
#StartupsEverywhere: Atlanta, Georgia. Zinnia Founder & CEO Lauren Marturano founded her company with the goal of making offsite corporate planning a seamless process by simplifying travel and agenda planning for groups. We spoke with her about her experiences as a woman founder fundraising and building a product, the importance of startup accelerators, and how it’s been navigating data privacy issues.
