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On Cyber Monday, Where is Your Money Going?

On Cyber Monday, Where is Your Money Going?
By Sam Whitehorn

For most people across the country, Cyber Monday – the online counterpart to Black Friday – means getting great deals on a product that you have probably had your eye on for a while, or marks the less-crowded kickoff to the holiday shopping season. In fact, you may be taking a Cyber Monday shopping break to read this piece.

It is no surprise that the popularity of Cyber Monday seems to steadily increase with each year, whether more retailers are participating, more consumers are getting online to shop, or both. In 2014 consumers spent more than $2 billion in online purchases – an 8.5% increase over 2013. Regardless of how they get online, consumers are shopping for everything, from clothing to home goods to health and beauty products – and all of these goods can be delivered to your door at the click of a button.

But what about digital goods and services? Consumers are also rapidly increasing their mobile app purchases – revenue for mobile app purchases reached an astonishing $87 billion last year, and is expected to increase to $150 billion by 2017. In just a matter of years, the types of digital goods available to consumers have exploded. Music, movies and TV shows, apps, e-books, video games, and many other electronic purchases never leave the digital world, but have become an important part of our day-to-day lives.

While a large part of our economy is based on our ability to use the internet to buy digital goods and services, most people don’t know that our tax system doesn’t have a uniform way to treat these purchases. Under the current structure, up to three states could charge you tax for your favorite movie (or e-book, or those extra Candy Crush lives):

  1. Where You Are: the state where you are when you press “Buy Now” to make the purchase.
  2. Where They Are: the state where the server resides – that’s right, the state where the “cloud” server lives.
  3. Where You Live: the state of your legal address of residence, if this is different from where you are when you make the purchase.

 

It’s hard to stomach the idea of being taxed multiple times for the same purchase, but fortunately there is a solution. Earlier this year, a bill was introduced in Congress that will provide the structure to normalize how digital purchases are taxed. Known on the Hill as H.R. 1643 and S. 851, The Digital Goods and Services Tax Fairness Act of 2015 (say that five times fast) also establishes clear jurisdiction so that consumers aren’t taxed multiple times for one purchase.

If I’ve kept your attention this long, it may be a lot to ask you for a few more minutes to let your Members of Congress know why this bill is important in our increasingly digital world. But before you get back online to buy that e-book for your sister, I hope you consider it.

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