U.S. Sens. John Thune (R-S.D.), member of the Senate Finance Committee, and Ron Wyden (D-Ore.), ranking member of the Senate Finance Committee, today introduced 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.
“Federal laws have not kept up with the fast-growing and ever-changing digital marketplace, resulting in outdated rules that could allow a single transaction to be taxed by multiple jurisdictions,” said Thune. “Our bill would prevent duplicative and discriminatory taxes on a wide range of digitally-delivered goods and services, such as downloaded music, books and movies, thus helping to ensure that the digital economy remains a source of innovation and economic vitality. I look forward to working with my colleagues in the Senate to move this legislation forward.”
“Modernizing the laws around taxing digital goods and services is good for consumers and innovators at the same time,” said Sen. Wyden. “The Digital Goods and Services Tax Fairness Act is the solution to a uniquely 21st century state tax quagmire, and I look forward to working with my colleagues to find a path forward.”
The Digital Goods and Services Tax Fairness Act 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 currently in statute as part of the Internet Tax Freedom Act. 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.The legislation also prevents state and local tax jurisdictions from imposing multiple taxes as digital goods and services move from one tax jurisdiction to the next across the Internet. Instead, the legislation says that when the legitimate taxes are imposed on a digital product, it can only be imposed 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 third state, all three could conceivably claim the right to tax. These stacked taxes create an unlevel marketplace and can raise the final prices on digitally enabled commerce.