May 12, 2011

Wyden – Thune Promote Innovation by Protecting Digital Commerce from Overbearing Taxes

Washington, D.C. – Citing the crushing effect that multiple and discriminatory taxes can have on developing industries, U.S. Senator Ron Wyden (D-Ore.) and John Thune (R-S.D.) introduced legislation today that will protect digital goods and services – like mobile smartphone apps and cloud computing -- from additional taxes.  

“Would consumers be as willing to try out a new I-Phone app if they have to pay taxes for every download?  How many app’s would even be available if every provider had to collect and comply with a different tax law or user fee in every state and/or locality?” Wyden asked.  “While I understand why states and local governments are looking for new opportunities to bring in revenue, the fact of the matter is that taxes discourage both product usage and innovation.  It would be a mistake to crush the U.S. growing digital goods and services industry before it has an opportunity to reach its full potential.   This bill gives the new and innovative digital economy the breathing room it needs to grow this exciting new market and create the good paying jobs that will result.”  

“Digital goods and services are a fast-growing and increasingly important part of our economy,” said Thune. “Unfortunately, the rules regarding how these goods and services can be taxed are ill-defined, creating the potential for multiple taxes by different jurisdictions on a single purchase by a consumer. Our legislation, which would provide clarity and uniformity in the taxation of digital goods, is good for consumers and job creators alike.”

The Digital Goods and Services Tax Fairness Act provides some “rules of the road” for taxing digital goods and services and establishes a framework for fairness across many tax jurisdictions. The bill prohibits state and local governments from applying taxes to those products that do not apply to similar tangible goods.  For example, a state or local tax jurisdiction cannot simply apply a tax on an electronic newspaper subscription if it does not apply the same tax to a physical newspaper.

The legislation also prevents tax jurisdictions from imposing multiple taxes as digital goods and services move from one tax jurisdiction to the next across the Internet. Instead, the legislation says that when the legitimate taxes are imposed on a digital product, it can only be imposed on the final customer or end user. Without this provision, the retailer in one state can be taxed on a product or service as can the consumer in another state. If that consumer is traveling in third state, all three could conceivably claim the right to tax. These stacked taxes create an unlevel marketplace and can raise the final prices on goods for the consumer stunting the explosive e-commerce growth seen over the last few years.