Digital Goods and Services Tax Fairness Act of 2013
- Jan 6, 2014 | Gail Cole
There’s a lot of talk about “leveling the playing field.” Education advocates want students to have a level playing field, so all students will have the same opportunities. Healthcare advocates suggest levelling the playing field for health insurance, so consumers will have an easier time decoding plans. And main street advocates want a level playing field between online vendors and brick-and-mortar stores, so that there are no tax benefits to shopping online rather than heading to the closest store.
Politicians try. President Bush signed No Child Left Behind in 2001, hoping to improve education for the most disadvantaged students. President Obama’s Affordable Care Act is attempting to provide health care coverage to all Americans. And when the Senate passed the Marketplace Fairness Act of 2013 (MFA) in May 2013, the talk was of “fairness,” of “collecting tax that is already due.” However, MFA has yet to become law.
Fair taxation of digital goods and services
Digital goods and services have created a whole new landscape—one that many worry is pocked with uneven ground. Leveling is required. The Digital Goods and Services Tax Fairness Act of 2013 (H.R. 3724) was created to do just that.
Last December, Science, Space and Technology Committee Chairman Lamar Smith (R-TX) introduced the Digital Good and Services Tax Fairness Act of 2013 with Rep. Steve Cohen (D-TN) “to protect consumers from unfair taxes on digital goods, like those purchased over the internet or on a smartphone.” Similar legislation was introduced in the Senate last summer.
Rep. Cohen spoke of how digital goods and services are becoming “a driving force in our national economy.” He said there is a need “to establish a uniform framework for the taxation of digital goods and services so consumers won’t be double taxed.”
Chairman Smith underscored the need to have tax policies that “do not unfairly penalize consumers who choose to download digital goods rather than purchase their tangible counterparts.” The Digital Goods and Services Tax Fairness Act of 2013, he said, “promotes tax fairness and ensures that consumers are not discouraged from purchasing digital goods.”
According to the nonpartisan Tax Foundation, the average combined federal, state and local tax and fee rate for wireless services is 17.18%. Joseph Henchman, Tax Foundation Vice President for Legal & State Projects, believes that state and local governments “should not single out one product for stealth tax increases as they are doing with wireless services.”
The legislation has the support of the CTIA, an international nonprofit trade association representing the wireless communications industry: “The Smith-Cohen bill will provide sensible, ‘bright-line’ rules for how digital good 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.” CTIA supports a national framework for digital trade, believing it will “help electronic commerce flourish and facility economic growth.”
In 2012, the National Council of State Legislatures sent a letter to Chairman Smith expressing concerns over similar legislation, the Digital Goods and Services Tax Fairness Act (H.R. 1860). The letter highlighted the following areas of concern:
- Sourcing rules;
- The impact on existing Streamlined Sales Tax State guidelines; and
- The impact on state budgets.
The current legislation is expected to addresses some of these issues.