Taxing Robots: Easier Said Than Done

In a recent interview, Bill Gates, the founder of Microsoft, suggested that it might be time to tax robots. In Gates's view, a tax on robots could be a means of both controlling the speed of automation and slowing the erosion of the personal income tax base as fewer individuals are employed over time. To the extent that total government revenues increased because of the new tax, those revenues could be used to create retraining programs for displaced workers. I will leave it to the economists and legal academics to say whether a tax on robots is a good idea at a theoretical level, whether such a tax will achieve the desired results, and whether the desired outcome will create a net benefit to society. In this article, I will address a specific issue: how could such a tax be implemented?

The threshold issue with any robot tax is identifying what constitutes a "robot" to which the tax would apply. Welder robots in a car factory and self-driving transport trucks immediately come to mind as examples of robots that displace workers, but there are many less obvious forms of automation. For example, ATMs and airline check-in terminals are not traditionally thought of as robots, but they are automated devices that reduce the number of jobs available to human bank tellers and airline agents. Online travel sites have no physical existence other than a server that may not be located in Canada (thereby making the collection of any robot tax uncertain), but they have nearly eliminated the jobs of travel agents. Perhaps the most threatening form of automation is artificial intelligence (AI) software, which has no physical existence (except the medium on which it is stored) but may render many white-collar jobs obsolete—including, eventually, those of many tax lawyers and accountants.

A further difficulty lies in distinguishing between robots that replace human labour and robots that supplement human labour. Consider, for example, a subsurface mining firm that owns a robot that can enter potentially unstable sites to determine whether they are safe for human beings. A tax on all robots would increase the cost of owning and operating the safety robot; if the robot became too expensive, human lives would be risked to do the robot's job. No proponent of a robot tax would welcome that outcome.

If these threshold issues could be solved, how might a robot tax be imposed? I will begin with normal policy options and then move on to less conventional speculation.
  • An excise tax could be imposed either on the purchase of a robot or on the licence fees paid for AI software. This sort of tax appears straightforward, but it may not apply to in-house software development or robot assembly.

  • A capital tax could be imposed on the robots owned by a firm. The tax could be based on an annual assessed value multiplied by a mill rate (like a municipal property tax), or it could be based on the book value of the robots (like the former part I.3 large corporations tax). This sort of tax might encounter difficulty with licensed intangible robots or with unique robots that are difficult to value.

  • A tax could be imposed on the combined value of the goods and services created by a firm's robots, with or without deductions or credits for the cost of acquiring or operating the robots. Although this tax might capture some of the value of robot production, it bears many similarities to the corporate income tax and might therefore be redundant.

  • A firm could be made to pay a tax equal to the personal income tax that would have been paid by the displaced employees, preferably with a deduction for the personal income tax paid by the former employees in their new jobs. Although this tax would align with Gates's vision of a robot tax, it would be very difficult to administer, and it is easy to foresee litigation arising over the reasons for employees being terminated.

  • Each robot could be deemed to be an individual and could be subject to personal income tax on a notional income calculated as a percentage of the value of its production or based on a notional wage that would be paid to a similarly skilled human being. This tax would be extraordinarily difficult to assess, especially if a robot was part of a team of robots (or a team of robots and human beings) that was responsible for the firm's production.

Each of these options has obvious flaws that would be difficult to eliminate. Moreover, each would have an impact on a firm's location and investment decisions to varying degrees, and therefore would potentially threaten the corporate income tax base. Finally, there is no guarantee that the incidence of any robot tax would fall on the robots' owners.

A tax on robots may not be feasible at present, but the notion is representative of the tax policy issues that will arise in the 21st century. As previously unimagined goods and services are created and delivered by previously unimagined means, and as our societies rearrange themselves in response to technology and automation, the tax system will have to adapt to new realities.

H. Michael Dolson
Felesky Flynn LLP, Edmonton

Canadian Tax Focus
Volume 7, Number 2, May 2017
©2017, Canadian Tax Foundation