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 was introduced in the House of Representatives by Reps. Steve Cohen (D-Tenn.) and John Ratcliffe (R-Texas) earlier today.
“Most Americans probably don’t go a day without using a digital good or service, like a book, movie, or some other type of online product,” said Thune. “This relatively new and evolving online marketplace can be, on one hand, an extremely convenient way for consumers to purchase and receive these products at the drop of a hat and, on the other hand, a sometimes challenging environment for those who provide these services, particularly as it relates to how they are taxed by state and local governments. Our bill modernizes existing laws to prevent multiple taxation and ensure these goods and services aren’t taxed at higher rates than what they would be if purchased in a brick-and-mortar store.”
“There are no rules of the road to govern how states tax digital goods and services like music and movie streaming,” said Wyden. “Our bill would make clear which states are entitled to tax these goods and services, preventing confusion for companies.”
The Digital Goods and Services Tax Fairness Act (S. 765) 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.