Bloomberg Tax
Free Newsletter Sign Up
Bloomberg Tax
Advanced Search Go
Free Newsletter Sign Up

Apple and Epic—Toward a New Service Facilitator Tax

Oct. 18, 2021, 8:01 AM

The issue of the moral justification for taxing consumption as against labor is not a new one. The idea that there are fundamental differences, from a social utility standpoint, between the entity that creates a good and those that provide a service is not an invention of the author. Indeed, John Rawls, writing in 1971, argued for the comparative fairness and preference of a consumption tax as against a progressive income tax owing to the former being imposed on the amount “a person takes out of the common store of goods and not according to how much he contributes.”

It is clear now that Epic’s antitrust challenge to the Apple App Store is not going to be a silver bullet substantially undercutting Apple’s ability to take their 30% App Store commission. Perhaps taxation can succeed where antitrust enforcement has failed.

Marrying Rawls’ insight with Epic’s failure, perhaps the route forward is a new marketplace facilitator tax on digital services—specifically those wherein the facilitator provides nothing more than a tertiary array of services: payment processing, distribution, exposure, etc. After all, in taking their 30%, are they not taking out of the common store of goods?

Marketplace facilitator taxes (MFTs) already exist in a number of states. They impose a requirement to collect sales and use taxes on businesses that operate as physical or electronic marketplaces facilitating the sale of a third-party’s products. In other words, when you buy something from a third-party seller on Amazon, Amazon is required to collect and remit the sales tax “on behalf of” the seller.

The rationale for these MFTs is relatively straightforward: Requiring individual sellers, which may be actual individuals, to collect and remit sales and use tax is an administrative headache, a compliance nightmare, and leads to lost revenue. So, too, would a rationale for a new service facilitator tax (SFT) on service commissions be straightforward: Societal recompense keyed to the amount the service provider takes out of the common store of goods without corresponding contribution.

Such a provision, for example taxing commissions collected for services deemed “tertiary services,” such as a payment system or app distribution platform, would discourage reliance on service-commissions and encourage diversity in the eco-system while simultaneously raising substantial revenue. Apple earned approximately $70 billion from the App Store in 2020—a 10% SFT would be good for approximately $7 billion in revenue. For comparison, Apple paid about $10 billion in income tax in 2020.

Escape routes for SFT-providers would be two-fold: Expand the basket of services provided beyond the tertiary, or open the system in such a way that allows users who wish to decline the tertiary services to use other platforms and escape the commission.

Providing Enhanced Services

In the Epic lawsuit, Apple contended that their closed garden ecosystem was necessary to provide end users with security, privacy, and curation. This is a reasonable starting point for defining what constitutes tertiary services—that is, those base services that will not remove a service provider from SFT liability.

As for security, Apple contended that the safety and stability of iOS is owing to it being a walled garden. User security, despite what the landscape of constant security breaches and data leaks would suggest, should not be considered a service provided by Apple—it is table stakes. Moreover, it is as much to the advantage of Apple to maintain a secure platform as individual users. This is not a value-added provision of services.

The same is true for privacy. User privacy is becoming increasingly a matter of public concern and a focus of legislation. Providing a service demanded by the public and required in an increasing number of jurisdictions is not a favor to users. It is the 2021 equivalent of demanding a commission to continue not having your cell phone spontaneously detonate.

Finally, as for curation, this is merely a coded term for the garden walls. Put differently, the walled garden is so successful because we provide the walls. Apple does some vetting, we’re told, but a perusal of the App Store would suggest they do not do a lot of vetting.

The SFT could be drafted in such a way that providing services beyond these base requirements removes the collected commission from liability. In other words, if Apple was to provide Epic with cloud computing resources to enable mobile gaming, or Netflix with access to a content distribution network, the SFT would not attach to any commission collected. Apple would not be merely a service facilitator, but would instead be a service provider.

Making Tertiary Services Opt-In

Ultimately, the more straightforward path for a service provider such as Apple to escape the SFT would be to merely make the services opt-in. In other words, if it is the case that security, privacy, and curation are indeed market-demanded services, and the only method by which those services can be provided is through a walled garden ecosystem, then opening up the platform itself to other platforms will not lead to a mass exodus from the App Store and its 30% commission regime.

When a developer such as Epic seeks to market a new app, they’ll examine the offer by Apple to take part in the App Store—with its security, privacy, and curation—and determine whether the deal is worth 30% commission on sales and in-app purchases. If the tertiary services are not worth the commission, Epic will opt to distribute their app through other means.

That last bit requires Apple consenting to permit other horticulturalists into their walled garden. It seems clear that antitrust actions are not going to succeed on that front—perhaps forcing them to open their Apple Wallets will.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Andrew Leahey is a tax and technology attorney in Pennsylvania and New Jersey.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at