House Bill Would Unify Tax Rules For Digital Commerce

Industry endorsed digital goods tax legislation introduced late Wednesday by House Communications Chairman Rick Boucher, D-Va. The bill (HR-5649) would set up “a uniform national framework for the taxation of digital goods and services,” Boucher said on the House floor late Wednesday. The bipartisan bill, co-sponsored by Rep. Lamar Smith, R-Texas, would cover digital music, movies and games, as well as the electronic delivery of professional, educational and health care services.

The legislation is backed by Verizon, Apple, Time Warner, Electronic Arts and the Recording Industry Association of America, Boucher said. Those and other groups, including CTIA, NCTA, USTelecom, TechAmerica and NetChoice, praised the bill in a Wednesday letter to Boucher and Smith. “The Act is critical to the continued growth of digital commerce and the overall economic competitiveness of the United States,” the industry groups said. “Congress should act now to ensure that consumers of this new, innovative form of commerce are not subject to multiple, discriminatory and inconsistent tax rules among the 8000+ state and local taxing jurisdictions that tax the digital networks that carry such commerce across the country."

"The existing sales and use tax laws are inadequate and ill-equipped to address today’s digital economy,” Boucher said. “The borderless marketplace and complex nature of digital transactions create new problems that must be addressed uniformly and on a national level to avoid double taxation and to ensure the fair and equitable treatment of digital goods and services.” Without a national framework, costs will rise for U.S. businesses, hindering investment in broadband networks, Boucher said. Also, lower-income consumers could be discouraged from using digital services, he said.

"Duplicative or increased taxes imposed by states for online products could create significant disadvantages for U.S. companies competing in global high tech industries,” said cosponsor House Judiciary Committee Ranking Member Smith. “This important legislation protects U.S. high tech companies and American consumers by establishing a uniform system for taxes on goods and services purchased online."

The bill would stop “multiple and discriminatory” taxes, “ensuring that digital goods and services are not taxed differently from their physical counterparts,” Boucher said. The bill would limit taxes to the retail sale and use of digital goods. Telecom utility taxes could not be imposed on them. Only the jurisdiction of the customer’s tax address would be able to impose taxes, stopping multiple states from assessing taxes. The bill would also stop “state and local tax administrators from retroactively construing taxes imposed on tangible personal property to also apply to digital goods and services through administrative rulings or regulations,” Boucher said. The bill would exempt online health, energy management and education services from all state and local taxes.