CCIA Supports Digital Goods Tax Fairness Act

May 24, 2011

On May 23, the House Judiciary Committee’s Courts, Commercial and Administrative Law Subcommittee held a hearing on H.R. 1860, the Digital Goods and Services Tax Fairness Act.  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.  CCIA supports the bill as a way to provide certainty and fairness to the growing digital marketplace and to stop, what is in effect, the punitive taxation of innovation.

H.R. 1860 was introduced by Rep. Lamar Smith (R-TX) and Rep. Steve Cohen (D-TN).  Similar legislation has been introduced in the Senate by Sen. Ron Wyden (D-OR) and Sen. John Thune (R-SD).  It is intended to address the fact that the market for digital goods and services transcends physical borders and therefore does not fit well with traditional tax jurisdictions.  As the Download Fairness Coalition (of which CCIA is a member) points out, “For example, if you live in Colorado and you make an online purchase of an app in Virginia, and the company from whom you bought the app has their servers located in Texas, any and all of those states could lay claim to the right to tax your purchase.”  The framework laid out in H.R. 1860 specifies the customer’s tax address as the jurisdiction with the right to tax a digital transaction (destination sourcing), and also prohibits the taxation of digital goods and services at a higher rate than similar non-digital goods and services.

Electronic commerce and the digital marketplace have enabled online businesses and their customers to dramatically broaden the scope of their activities beyond traditional geographic limitations.  CCIA has long held that such innovation is to be encouraged, not penalized.  The exploitation of the digital market’s extra-geographic nature by multiple jurisdictions would be a shortsighted sacrifice of tomorrow’s marketplace for today’s revenue.

During yesterday’s hearing, Rep. Cohen mentioned the fact that a religious group had predicted the world would end over the weekend, and stated that it seemed as if some opponents of the bill were predicting the world would end if it passed.  H.R. 1860 would not end anything, but rather would provide for the continued development of a new and innovative marketplace.

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