Last week, the House Judiciary Committee passed the Manager's
Amendment of H.R. 1860, the Digital Goods and Services Tax Fairness Act, by
voice vote. The bill establishes a
national framework for how state and local taxes
apply to digital goods and digital services so as to prevent multiple and
discriminatory taxation. CCIA
welcomes committee passage of this legislation as we believe it recognizes the
importance of innovation and the need to provide for the continued development
of the growing digital marketplace.
The Digital Goods and Services Tax Fairness Act, sponsored
by Judiciary Committee Chairman Lamar Smith (R-TX) and Rep. Steve Cohen (D-TN),
would limit taxes on digital goods and services to either the buyer or seller,
clarifies that the customer’s tax address is the only jurisdiction with the
right to tax a digital transaction, and prohibits the taxation of digital goods
and services at a higher rate than similar non-digital goods and services.
The fact that digital transactions transcend physical
borders enables a far-flung marketplace unhindered by distance and
geography. However, at the same
time, this extra-geographic nature makes them vulnerable to multiple tax
jurisdictions seeking to use any connection (no matter how marginal) to the
transaction to take their cut. The
real and potential benefits of the digital marketplace need to be shielded from
such exploitation, and the clarification provided by H.R. 1860 would do
that.
While it is heartening that H.R. 1860 was passed with broad
support in the committee, some members made troubling comments about their
willingness to link it with efforts on other bills (the Main
Street Fairness Act and the Marketplace
Equity Act) that would force out-of-state online retailers to collect sales
and use taxes on purchases made by residents of a state, regardless of whether
the retailer had any physical presence in that state. While these bills do deal with online markets and taxes,
their approach to innovation could not be more different. H.R. 1860 seeks to prevent new digital
markets from being penalized for their innovation, while online sales tax
collection bills would allow states to do just that by targeting them as
convenient sources (and collectors) of revenue. Online sales tax collection is a completely separate issue
and we hope that Congress will keep it that way.
