Now is the Time for Digital Goods Legislation
The dust has settled, the decks are cleared, and it’s time for Congress to pass legislation that provides a forward looking framework for our economy as it continues to use the digital world – the “Internet of Things” – more and more.
Today, the purchase and use of digital goods is growing exponentially. Whether it is consumers and businesses making use of the cloud, or simply buying digital books or movies to watch on a plane, it is happening at a blinding pace. However, our laws governing the taxation of that transaction are moving at a glacial pace. When purchasing a digital product, current law does not sort out which jurisdiction has the right to tax that purchase.
Right now, it is possible that three states could seek to claim the right to tax (or not tax) the same purchase. Think of it this way, you are at an airport heading home, and you buy a movie for the flight. The server is located in another state, and you live in a third state. What do you do as a consumer? You could get a tax bill from a state you have never been in, based on the server location for example, with that state claiming the right to tax the digital good. Conversely, your home state may have decided that digital goods should not be taxed and yet you have no recourse, due to the tax interpretation of a state where you have never set foot.
H.R. 1643, the Digital Goods and Services Tax Fairness Act (and its corresponding Senate bill S. 851), was favorably reported by the House Judiciary Committee on June 17 of this year. The bill would protect consumers by clearly identifying which jurisdiction has the right to tax a digital transaction, and provide states the right to not tax a digital transaction at all should it so choose. This legislation provides states with a roadmap of what they can do, provides them with certainty in terms of the right to tax, and lays a stable tax foundation for a huge and growing swath of our economy as more and more digital goods and services are bought on a daily basis.
It is time to move this bill to the President’s desk. Doing so will let states and consumers know the rules of the road with respect to the tax rules applicable to their purchases of digital goods and services.
-Sam Whitehorn, Executive Director, Download Fairness Coalition