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.
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Digital Taxation: The new state and local revenue filler, and quick way to hurt businesses and consumers
Oklahoma Legislature Rejects Download Tax
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.
Illinois Governor Backs Off Download Tax Proposal
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.
Translation: your voice can make a big difference in stopping the spread of download taxes. Sign up now!
Illinois Governor Considering Download Taxes
The Governor is considering a new sales tax on downloaded music and videos as part of a package of tax increases to help fill a large projected budget deficit, according to the Chicago Sun Times. The download tax proposal – expected to raise between $5 and $10 million from on-line purchasers – is one of a dozen options that could increase taxes by between $360 million and $570 million.
Consumers are increasingly enjoying the convenience, selection, and environmental benefits of purchasing digital music, video, and other digital products on-line. The proposed new tax would not only discourage on-line purchases, but it would also drive Illinois consumers to purchase from out of state sellers. This is because, under the proposal, Illinois businesses would be required to collect the tax while out-of-state businesses would not.
With Illinois and other states desperate for revenue, it is critical that Illinois consumers take action now to prevent damaging new taxes on the digital economy. Click here to let Governor Quinn know that you do not support a new tax on downloaded music and videos.
Oklahoma Governor’s Budget Calls for Discriminatory Tax on Digital Products
Oklahoma’s proposed budget for 2011 includes a new tax on digital products. The proposed tax, which applies to certain digital products, will harm in-state businesses by requiring them to collect sales tax on those specified products, while out-of-state businesses selling the same products would not be subject to the sales tax collection. This tax would also drastically reduce the progress Oklahoma has made towards attracting new business to their state with legislation such as the Oklahoma Site Ready Program. Despite the discriminatory nature of such a tax, the Governor has included it in his proposed budget. You can do something about this! Click here to let the governor know you don’t support this new tax on digital goods in Oklahoma!
FCC Issues Broadband Plan Calling For Federal Framework to Prevent Multiple and Discriminatory Taxation of Digital Commerce
The Federal Communications Commission released its National Broadband Plan on March 16, 2010, including a recommendation that the federal government establish rules for state taxation of digital goods and services. While the FCC’s Plan is focused on increasing access to broadband service, Recommendation 4.20 of the Plan calls for the federal government to establish “a national framework for digital goods and services taxation.” The Plan recognizes that “the current patchwork of state and local laws and regulations relating to taxation of digital goods and services (such as ringtones, digital music, etc.) may hinder new investment and business models.” It is hoped that a national framework would solve some of complexity and problems being created as states attempt to impose onerous taxes on digital goods and services. Specifically, the framework must prevent multiple and discriminatory taxation of digital commerce and employ a uniform sourcing regime.
Vermont Tax Department Heeds Governor’s Request Not To Expand Sales Tax on Digital Products
The Vermont Tax Department followed the Governor’s recommendation that the sales tax not be expanded to tax more types of digital goods. Vermont first imposed the tax on “specified digital goods” last year by overriding the Governor’s veto. The bill recently killed would have expanded that tax to include “products transferred electronically that would be taxable if delivered on tangible storage media….” Despite the Tax Department’s initial statement that it was only trying to tax electronic photographs and greeting cards, the proposed language would have undoubtedly hit many more digital products. Currently, ringtones for cell phones and digital downloads of books, videos, and music are subject to the sales tax. To read more about the testimony before the House on February 11 concerning this matter, click here.
Wyoming’s Governor Signs Bill to Subject Digital Products to Sales Tax for In-State Businesses and Consumers
Despite other states’ willingness to forego such legislation, Wyoming has passed a bill that subjects Wyoming businesses to sales tax collection for sales of “specified digital products” to Wyoming customers. The Governor signed HB 29 on March 8, 2010.
UnfairDownloadTaxes.com previously outlined why other states have not enacted such legislation, noting the adverse impact it would have on both their in-state businesses and their ability to attract new business investment.
Wyoming’s legislation subjects “specified digital products” such as music, movies, and books to sales tax. Supporters of UnfairDownloadTaxes.com were successful in limiting the scope of the new tax. The final bill imposes the tax on digital goods if the purchaser has permanent use, possession, or control of the product.
Amidst intense competition to attract technology business investment, Wyoming is likely to lose out on new business development to other states, including North Dakota, California and New York, that have rejected this kind of new tax. The bill will also harm existing Wyoming businesses by subjecting them to sales tax collection requirements not imposed on out-of-state sellers.
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.
