The Vermont Ways and Means Committee heard testimony February 11 on legislation proposed by the Tax Department to expand the taxation of digital goods. 

Last year, the legislature adopted a new tax on “specified digital products” by overriding the Governor’s veto of the budget bill.  Specified digital products are a narrowly defined set of digital goods that include ringtones for cell phones and digital downloads of books, videos, and music.  The new language proposed by the Tax Department would impose the tax on “products transferred electronically that would be taxable if delivered on tangible storage media...”

The Tax Department testified that the intent of the provision was to expand the tax to digital photographs and possibly electronic greeting cards, two items that the committee discussed last year but ultimately chose not to tax due to concerns about whether doing so would run afoul of the Streamlined Sales Tax Project.  Even though the Department’s stated intent was limited to these products, Scott Mackey testified on behalf of the Digital Goods Coalition that the language could broaden the scope of taxation in Vermont to services when the line between “software” and “services” is blurred.

The Governor has stated that he does not support new taxes, and he expressed public opposition to the download tax last year.  Hopefully, the Tax Department will agree to back away from this proposal or at least narrow the scope to the specific products they have identified in their testimony.