More than ever before, American consumers like you are using wireless to go online to buy and download what are called “digital goods and services.” Those include apps, music and ringtones, movies, TV episodes, e-books and video games.
Because technology has evolved more quickly than the tax code, the tax law surrounding digital goods and services is confusing and often duplicative. Right now, it’s possible you could be taxed by several different jurisdictions for the same digital purchase.
- You buy a digital book online with your smartphone while you’re waiting at the Chicago airport for your connecting flight…
- The server of the company you “accessed” the digital book from is located in Seattle, Washington….
- The address of the credit card that you charged your purchase to is your home address located in Alexandria, Virginia…
… and to your shock, you find out that all three jurisdictions could be claiming the right to tax your purchase of the digital book!
In fact, with state and local governments desperate for new revenue sources, that scenario is very possible. That’s why it’s important to make sure wireless consumers are treated fairly and that we have a reasonable and sensible tax structure for the “app” economy.
Help From Congress: The ‘Digital Goods & Services Tax Fairness Act’
Thankfully, there’s a bill before the U.S. Senate that would prevent digital goods purchases from being subjected to multiple and discriminatory taxes. The bipartisan federal legislation called the ‘Digital Goods & Services Tax Fairness Act‘ (S. 851, H.R. 1643) would establish a “national framework” – essentially, “rules of the road” – for how the growing digital marketplace should be fairly taxed at the state and local levels.
What the Bill Does
- The legislation would clearly establish which jurisdiction — either the consumer’s home or work address — has the right to tax digital transactions, if they so choose, and then tells all others…hands off!
- This would make sure consumers aren’t punished with multiple taxes on digital purchases. It would prevent consumers from being double or even triple-taxed on the purchase of a song, movie or on that latest incredible app, as could be the case today.
- Even under our Federalist system, this is an issue that only Congress can rationally resolve, reinforcing Congress’s important role in establishing tax policies applicable to commerce that crosses state and international borders. It is more important than ever for Congress to enact this legislation now with so many people making online digital purchases with their wireless devices.
Support for the Bill
- Representatives Lamar Smith (R-TX) and Steve Cohen (D-TN) and Senators Ron Wyden (D-OR) and John Thune (R-SD) have introduced identical, bipartisan bills in both Chambers respectively. The House Judiciary Committee marked up the bill and reported it favorably out of Committee last June. The legislation has yet to be considered by the full U.S. House and is still waiting action before the Senate Finance Committee.
- These original sponsors have remained committed to developing a common sense solution to taxes imposed on the digital economy that will provide much needed certainty for consumers, businesses and state and local governments. They’re supporting a bill that would get ahead of a potential tax nightmare for wireless “app” users. The possibility of multiple taxes being imposed on the same purchase is very real. As of 2015, 28 states (including DC and Puerto Rico) have expanded their sales taxes to specifically include some form of the digital economy in their tax base, while many more have considered similar proposals.
- The “app” economy can no longer wait. It is time for Congress to act on this legislation to ensure a rational framework is established for the state and local taxation of the digital goods and services, allowing this segment of our economy to continue it explosive growth.
What You Can Do
Tell your U.S. Senators and Representative that digital goods and services should be taxed fairly today!