House Follows Senate in Digital Tax Fairness

House Follows Senate in Digital Tax Fairness


On December 12, 2013, just before Congressional recess, Representative Lamar Smith (R-TX) introduced the ‘Digital Goods and Services Tax Fairness Act,’ H.R.3724, to “promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services.”  Representatives Steve Cohen (D-TN), Howard Coble (R-NC), Spencer Bachus (R-AL), Steve Chabot (R-OH) and Jason Chaffetz (R-UT) co-sponsored the bill. This proposed legislation follows a bill of the same name, S.1364, introduced by U.S. Senator Ron Wyden (D-OR) on July 25, 2013. Together, the authors of both bills seek to prevent state or local jurisdictions from imposing multiple or discriminatory taxes on the sale or use of digital goods or services delivered or transferred electronically to a customer.

Jot Carpenter, Vice President of Government Affairs for CTIA-The Wireless Association applauded the House move, saying that “the Smith-Cohen bill will provide sensible, ‘bright-line’ rules for how digital goods should be treated by state taxing authorities and protect consumers from multiple, discriminatory taxes when they download a book or a movie to a mobile device.”  He went on to note that “creating a national framework for digital trade will help electronic commerce flourish and facilitate economic growth.”

Considering the prevalence of digital transactions ranging from the explosion of the app economy to increases in the use of e-readers and mobile downloads, this legislation – if passed – would help consumers save money each time they engage in digital commerce.

According to the Pew Internet & American Life Project, 50% of cell phone owners use their devices to download applications while 60% use them to access the Internet.  When 91% of American adults have a cell phone and 56% have a smartphone, the potential for e-commerce is quite substantial. Further, with 24% of Americans ages 16 and older owning an e-reader and 35% in that demographic owning a tablet computer, opportunities to access digital goods and services only increases.

At present, wireless consumers pay an average of more than 17% in combined state, local and federal wireless taxes and fees. If this legislation does not pass in the U.S. House and Senate, consumers could face further tax consequences each time they download an app, an e-book, a song, or a game.

What’s more, increasing consumer tax burdens on the use of wireless devices could have a chilling effect on one of the most dynamic sectors in our economy, hampering growth and continued innovation in the space. If people can’t afford to use their cell phones and other mobile devices because each time they download a new product or service their prices increase, new businesses and would-be entrepreneurs may be disincentived from creating new applications and service offerings, knowing that people cannot afford to use them.

It would seem that the issue of digital goods taxation has escaped the ultra-partisan rancor which has infected so many parts of the 2013 Congress. Hopefully, in the new year, Congress can be unified in passing legislation that has the potential to positively benefit so many Americans.