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.
