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Policy: Technology

Multiple levies on digital goods targeted by House bill

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A key House Republican plans a renewed effort to bar multiple taxes on digital goods and services, offering a revised bill that seeks to overcome objections that stalled a past legislative effort.

Rep. Lamar Smith of Texas, a former chairman of the House Judiciary Committee who remains a panel member, earlier this month introduced the measure to prohibit what the effort’s supporters say are discriminatory taxes on music, pictures and other digital goods and services sold over the Internet, Bloomberg BNA reported.

The proposal, which Smith intends to push when Congress reconvenes after the holidays, starts out with bipartisan backing. Co-sponsoring Smith’s bill is Rep. Steve Cohen, a Tennessee Democrat. Promoting similar legislation in the Senate is Oregon Democrat Ron Wyden, who probably will become chairman of his chamber’s tax-writing Finance Committee early next year.

“As technology advances, it is important that tax policies do not unfairly penalize consumers who choose to download digital goods rather than purchase their tangible counterparts,” Smith said in a statement as he unveiled his bill. “This legislation promotes tax fairness and ensures that consumers are not discouraged from purchasing digital goods.”

Smith’s earlier bill was approved by the House Judiciary panel in 2012, when he served as chairman. The bill failed to advance, and Smith and its other backers crafted the new version to address what they agreed were shortcomings.


Bill Opponents

The National Governors Association was one of the groups opposing the initial legislation, saying it needed a tighter definition of digital goods and adjustments to reduce the potential lost revenue to state and local governments.

The legislation would have cost those jurisdictions as much as $3 billion in forgone sales tax after its first year in effect, the Congressional Budget Office reported.

The earlier bill also drew complaints that it infringed on states’ authority by effectively barring the sole use of regulatory or administrative means to shape sales taxes on digital goods, said Sam Whitehorn, executive director of the Download Fairness Coalition, which includes the Wireless Association and other groups pushing for the legislation.

In response to governors’ concerns, the bill’s supporters dropped a provision that would have required states to use a legislative route rather than rely on administrative authority, Whitehorn told Bloomberg BNA.

The bill declares that a state may only tax sales of digital goods and services to customers with a tax address within that state. States also may not impose multiple taxes on digital goods.


Digital Definition

The bill defines digital goods as sounds, images, data and facts maintained in digital form. Internet access service is not a digital good, the bill says.

The legislation “brings us closer to establishing a national framework guiding how state and local taxes can be imposed rationally and fairly on the digital economy,” said Whitehorn. “As the digital economy continues to grow, such a framework will ensure consumers are never subject to the nightmare scenario where someone downloading a single app or song could be taxed multiple times for the same product by competing jurisdictions.”

One contentious issue — the taxation of hotel rooms reserved through third-party websites — remains to be settled. The legislation says hotel intermediary services aren’t considered digital services.

Whitehorse said that for now the bill doesn’t address whether hotel rooms purchased through such services should be subject to sales tax on the price the consumer paid or on the wholesale price the service paid earlier.


Committee Chairmanships

Smith, who left the Judiciary panel chairmanship because of term limits House Republicans imposed on such posts, now heads Science, Space, and Technology Committee. Representative Bob Goodlatte, a Virginia Republican, is at the helm of the Judiciary Committee.

Wyden is in line to head the Senate Finance Committee because its current chairman, Max Baucus, is retiring from the Senate. President Barack Obama is nominating Baucus to become the next U.S. ambassador to China, and the Montana Democrat is expected to win Senate confirmation for the post.

Also pending before the House Judiciary Committee is another Internet sales-tax bill, the Marketplace Fairness Act that passed the Senate in May. It would grant states the power to require remote sellers to collect for them sales taxes at the time of purchase. It also would impose a framework for harmonizing state sales-tax rules to reduce collection burdens on retailers.

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