Proposal Would Prevent Double-Taxing Digital Goods and Services
Posted September 2, 2011
Proposal Would Prevent Double-Taxing Digital Goods and Services
States would be prohibited from imposing multiple or discriminatory sales or use taxes on purchases of digital goods or services under legislation introduced in both houses of Congress in May.
More than 20 states currently collect taxes on digital goods such as music files, e-books and software. At least four states have indicated that they will not subject intangible items such as digital goods and services to sales tax.
Designed to protect consumers from "discriminatory" taxes on digital goods purchased over the Internet or on mobile devices, the Digital Goods and Services Tax Fairness Act of 2011 would ensure that digital goods are not taxed at a higher rate than their tangible counterparts.
For example, the proposed law would prevent taxation of mp3 and software downloads at a higher rate than the tax on music and software CDs. Supporters say the legislation makes sure that consumers do not suffer tax discrimination because they choose to purchase a good in digital rather than tangible form.
As proposed, the Act provides that taxes on the sale of digital goods and services could only be imposed by the state or jurisdiction that is the customer's "tax address."
In 2010, U.S. online retailers reportedly sold 1.17 billion digital music tracks totaling $1.5 billion in revenue. Similarly, e-book sales in the U.S. reached $1 billion and are expected to almost triple by 2015. U.S. consumers used mobile devices to download almost 1.6 billion free and paid apps in 2010, generating approximately $1.6 billion in paid app revenue.
"In our modern economy, more and more consumers are buying digital goods and services rather than tangible goods," said co-sponsor of the bill, Rep. Lamar Smith (R-Texas). "As technology advances, it is important that tax policies do not unfairly penalize consumers who choose to download digital goods."
"Digital goods and services are quickly becoming a driving force in our national economy," said Rep. Steve Cohen (D-Tenn.). "We need to establish a uniform framework for the taxation of digital goods and services, so consumers won't be double-taxed."
Similar legislation was introduced last year, but it died before reaching a vote. Various House committees are now hearing testimony on the bill.
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