As a way to supplement their traditional revenue sources, some states want to close what they think is a tax-free loophole where digital goods and services land. In the last two years, some states like New York, Oklahoma, and Illinois have proposed legislation to tax digital goods and services, but have backed off from or failed to pass the legislation. On the flipside, North Dakota and Washington D.C. are the only two states that expressly do not tax digital goods and services.
Now the Congress under H.R. 5649, known as the Digital Goods and Services Fairness Act of 2010, is weighing in. The bill was introduced this week and is aimed at counteracting states’ piecemeal and potentially predatory tax practices regarding digital goods and services. The bill first prohibits multiple or discriminatory taxing of the sale or use of digital goods or services. Second, consumers can only be charged their state’s retail sales tax on digital music, books, and videos.
Without this federal bill becoming law, there is nothing in place to ensure states and local governments do not impose discriminatory taxes on consumers, providers, and distributors. As it stands now consumers could end up paying multiple taxes on the same transaction. Also, there are no safeguards to protect against predatory tax rates like those of the wireless telephone service sector. Plus, taxing digital goods could drive consumers to download pirated content as a way to avoid paying sales tax.
Emerging areas of the digital market are something else to consider. Allowing states to continue enacting varying and confusing digital tax laws stifles the innovation and growth of the self e-publishing frontier. Unlike the established market of music artists who sell their songs through online retailers, or through their own online store, authors of books, short-stories, and private blogs not supported by traditional publishing enterprises, may balk at expanding into the digital market because they do not want to deal with the confusing and predatory state tax laws when selling their content online.
Differing state tax laws also harm businesses because they are at an economic disadvantage if they reside in a state that imposes a sales tax on digital products, but their out-of-state competitors do not. Local jobs will disappear when companies relocate to states like North Dakota where digital tax policies act as incentives to do business there. Plus small businesses will be hamstrung trying to navigate the varying state and local tax rates being applied to the sale of their digital product.
Ultimately, the last ten years has brought us economic growth and innovation in the delivery of digital goods and services. Letting states fill the holes in their budgets with revenues from taxes of digital goods and services will only slow down a vibrant and thriving marketplace. It is this digital marketplace that we should be cultivating and embracing as an opportunity to rebuild our economic footing, and we as consumers can continue to enjoy access to digital music, books, and movies when we reach for cell phones, computers, and e-readers.
A proposal by Oklahoma Governor Brad Henry to tax digital downloads has been rejected by the legislature. In February, the Governor proposed a digital downloads tax as part of an effort to raise over $200 million in new taxes and fees to balance the state budget. However, the legislature adjourned on May 28th after passing a budget that did not include the download tax. Thanks to everyone who contacted the Governor and state legislators to oppose this new download tax.
Facing pressure from the consumers and legislators, Illinois Governor Quinn is now backing off from his proposal to tax digital downloads of music and video. The Chicago Tribune reported today that the Governor denied ever advocating for the tax, even though it appeared on a list of revenue options that his Office of Management and Budget provided to legislators earlier this week. Observers suggested that the tax proposal would “attract way too much attention” to gain traction with legislators facing re-election in November.
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Virginia Democrat Rick Boucher and Texas Republican Lamar Smith have introduced the Digital Goods and Services Tax Fairness Act of 2010 which would make it extremely difficult for states to levy taxes on goods and services purchased over the Web. The Boucher-Smith bill would impede the taxing of digital goods because it would force state legislatures to hold up or down votes every time a state agency attempted to tax anything sold via the Internet.
Read More at NetworkWorld
South Carolina's Tax Realignment Commission is recommending that the state for the first time charge sales taxes on digital purchases from online stores including iTunes and Amazon.com. The commission's proposal is the latest in a series of changes lawmakers have made to the system of tax collections, and represent a reversal of recent legislative philosophies. However, no changes will happen unless the Legislature approves them.
Read more at The Post and Courier
Currently, some 23 states and the District of Columbia levy sales taxes in one form or another on e-books, music, apps, ringtones, and other digital downloads. However, a new proposal in the U.S. Congress titled the Digital Goods and Services Tax Fairness Act, is designed to ensure that these"iTaxes" which have popped up all over the country in the last three years do not single out the digital marketplace with excessive or discriminatory taxes. The bill, sponsored by Congressmen Rick Boucher (D-VA) and Lamar Smith (R-TX.), is part of a broader effort by technology firms and telecommunications providers to push back against what they view as tax agencies that are unreasonably singling out electronic purchases with unfair, expensive, and confusing rules.
Read more at CNET news
Do you think it’s fair to be taxed when you buy music, games, applications, or other downloaded products and services on the Internet? States are facing real budget crises, but so are consumers. Today, the threat of download taxes has never been greater. SIGN THE PETITION TODAY and help keep Internet commerce free from taxation.