The Digital Goods Act and Double Taxation

As online consumer options increase, so should commonsense taxation, according to bipartisan supporters of a federal digital goods and services taxation bill.

The legislation, The Digital Goods and Services Tax Fairness Act of 2011 (H.R. 1860 and S. 971) was created “to promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services,” according to bill sponsors.

Advocates for the bill believe that responsible taxation, instead of by any means necessary revenue, should remain a focal point in consumer protection.

Robert D. Atkinson, Information Technology and Innovation Foundation president/founder,  addressed the 
Subcommittee on Courts, Commercial and Administrative Law Committee of the Judiciary 
U.S. House of Representatives.

“…with thousands of different tax jurisdictions in the United States—each with their own definitions and tax rates—buyers and sellers face an increasingly complex and unfair tax system,” Atkinson said.

The possibility of multiple taxes for the same purchase is of primary concern for many wireless-using and receipt-monitoring Americans. The legislation would stop consumers from being double or triple-taxed on an mp3, video or on apps—all current possibilities.

Here’s how it works: When you purchase a digital good – you are potentially subject to paying sales tax more than once. 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 a Texas, any and all of those states could lay claim to the right to tax your purchase. You just paid triple the taxes.

As supporters express the need for constituent friendly legislation, critics believe that the bill guts public services and encourages tax avoidance.

In a statement representatives from The Center for Public Policy Priorities said, “Texas, which relies on the sales tax for more than half of all state tax revenue, would be affected more than most other states…”

The statement expressed entrepreneurial cynicism regarding multiple taxation prevention.

“This legislation would open up opportunities for online sellers of physical goods to change their legal structures to avoid charging sales taxes even once, and it would spur substantial litigation because of its vaguely-defined and unspecified terms.”

What states fail to consider is the legislation puts rules in place for the taxation of digital goods thus eradicating current loopholes and taxation ambiguity that could discourage participation in a growing online market altogether.

Supporters of the legislation come from varied political and geographical locations.

Representatives Lamar Smith (R-TX) and Steve Cohen (D-TN), and Senators Ron Wyden (D-OR) and John Thune (R-SD), introduced The Digital Goods and Services Tax Fairness Act of 2011.

To support the legislation check out: http://act.mywireless.org/page/speakout/digital-goods-tax-fairness-act