U.S. Sens. John Thune (R-SD) and Ron Wyden (D-OR) introduced a bill to prevent duplicative taxes on digital goods and services, including online downloads of music, literature, movies, mobile apps, and cloud computing services.
The Digital Goods and Services Tax Fairness Act (S. 765) outlines new rules for taxing digital goods and services. It would prohibit state and local governments from applying taxes to products that do not apply to similar tangible goods, which is in line with the Internet Tax Freedom Act permanent law in 2016. Under this bill, a state or local tax jurisdiction cannot apply a tax on an electronic newspaper subscription, for example, if it does not apply the same tax to a physical newspaper. So, 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, a retailer in one state can be taxed on a product or service, as can the consumer in another state. And, 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 multiple taxes can lead to higher prices on digitally enabled commerce and threaten the growth and innovation in this sector.
“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,” Thune said. “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.”
A companion bill was introduced in the House of Representatives by Reps. Steve Cohen (D-TN) and John Ratcliffe (R-TX).
“There are no rules of the road to govern how states tax digital goods and services like music and movie streaming,” Wyden said. “Our bill would make clear which states are entitled to tax these goods and services, preventing confusion for companies.”