Sens. Ron Wyden (D-Ore.) and John Thune (R-S.D.), members of the Senate Finance Committee, introduced legislation Thursday to prevent what they call discriminatory and duplicative taxes on digital goods and services, including online downloads of music, literature, movies, mobile apps and cloud computing services.
Their bill would clarify federal rules related to the taxation of digital goods and services, and prevent unfair and duplicative taxation. 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, they said.
“Creating clear, national disciplines that govern the taxation of the digital economy is critical to innovation and the growth of this segment of the American economy,” Wyden said. “This bill, which is consistent with the principles of the Internet Tax Freedom Act that is current law, protects the digital economy from the unfair application of taxes that would stifle the innovative digital goods and services that are transforming the economy.”
“Federal regulations have not kept up with the fast-growing and ever-changing digital marketplace, resulting in outdated rules that could allow a single transaction to be taxed by multiple jurisdictions,” said Thune.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 everything from downloaded music, to literature, to movies, 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.”
The Digital Goods and Services Tax Fairness Act provides some “rules of the road” for taxing digital goods and services and establishes a framework for fairness across many tax jurisdictions.
The bill prohibits state and local governments from applying taxes to those products that do not apply to similar tangible goods. 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 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, the senators say, create an unlevel marketplace and can raise the final prices on goods for the consumer, stunting the explosive e-commerce growth seen over the last few years.