Last week, Sen. Ron Wyden (D-OR) and Sen. John Thune (R-SD) introduced the Digital Goods and Services Tax Fairness Act of 2013. The bill would establish a national framework for how state and local taxes apply to digital goods and digital services so as to prevent multiple and discriminatory taxation. Sen. Wyden and Sen. Thune have shown a keen understanding of the value of innovation and the need to promote electronic commerce in introducing legislation that would provide tax certainty and fairness for digital goods and services.
CCIA supports such legislation because it is a much-needed update and clarification for a tax system that did not foresee the emergence of a digital marketplace. Digital transactions are unhindered by distance and geography, thus leading to serious incompatibilities in the context of a tax system still based on physical location. The very extra-geographic nature of electronic commerce that has enabled a potentially revolutionary expansion of traditional commerce also leaves it vulnerable under the current tax system to multiple tax jurisdictions seeking to use any connection (no matter how marginal) to the transaction to take their cut. As Sen. Wyden states, the bill “protects the digital economy from the unfair application of taxes that would stifle the innovative goods and services that are transforming the economy.”
I would like to point out one issue of concern. Perhaps due to the seemingly common themes of e-commerce, tax and fairness, there have been times that the Digital Goods and Services Tax Fairness Act has been linked to the Marketplace Fairness Act (the online sales tax collection bill). However, such a linkage is wholly misleading and improper. The Digital Goods and Services Tax Fairness Act seeks to update the tax system to prevent new digital markets from being penalized for their innovation, while the Marketplace Fairness Act forces online retailers to bear the burden of tax collection, penalizing them for daring to innovate beyond the current tax system. It is important to note that these two bills are polar opposites in their approach to innovation, and CCIA will continue to oppose the Marketplace Fairness Act and other efforts at forcing online retailers to collect sales and use taxes regardless of physical presence.