U.S. Sens. John Thune (R-S.D.), a member of the Senate Finance Committee, and Ron Wyden (D-Ore.), ranking member of the Senate Finance Committee, today reintroduced legislation to prevent discriminatory and duplicative taxes on digital goods and services, including online downloads of music, literature, movies, mobile apps, and cloud computing services. The potential for multiple and discriminatory taxes levied on these types of goods and services could threaten the growth and innovation of this important sector of the economy. A companion version of this legislation is expected to be introduced in the House of Representatives as early as tomorrow.
“While today’s digital marketplace is evolving as rapidly as the day-to-day consumers who rely on it for digital products like music, books, movies, streaming services, or other popular apps, federal law lags far behind,” said Thune. “As a result, some consumers can be taxed multiple times on a single digitally delivered product or service by different tax jurisdictions. In some cases, these digital goods and services also can be subject to higher rates than would apply if the consumer bought them in a brick and mortar store. Our bipartisan legislation simply prevents this duplicative and discriminatory taxation, which will help ensure today’s digital economy isn’t held back unnecessarily and can continue to offer opportunities to entrepreneurs and consumers alike.”
“Preventing unfair taxes on music, books and other important goods and services benefits consumers and innovators alike,” said Ranking Member Wyden. “This bipartisan legislation solves a 21st century tax riddle by establishing a comprehensive set of rules for states to follow. I encourage my colleagues to support this bill as Senator Thune and I push for its swift passage.”
The Digital Goods and Services Tax Fairness Act (S. 3581) provides some “rules of the road” for taxing digital goods and services and establishes a framework across multiple tax jurisdictions. The bill prohibits state and local governments from applying taxes to those products that do not apply to similar tangible goods, as has been the law since Congress made the Internet Tax Freedom Act permanent law in 2016. For example, a state or local tax jurisdiction cannot simply apply a tax on an electronic newspaper subscription if it does not apply the same tax to a physical newspaper.
As digital goods and services move from one tax jurisdiction to another across the internet, the legislation also prevents state and local tax jurisdictions from imposing multiple taxes on consumers. Instead, the bill requires that when legitimate taxes are imposed on a digital product, a tax jurisdiction can only impose them on the final customer or end user. Without this provision, the retailer in one state can be taxed on a product or service, as can the consumer in another state. If that consumer is traveling in a third state, all three states could conceivably claim the right to tax the downloaded product or service. These stacked taxes create an unlevel marketplace and can raise the final prices on digitally enabled commerce.
For more information on the Digital Goods and Services Tax Fairness Act, click here.