Statements on Introduced Bills and Joint Resolutions

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

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Mr. WYDEN. Mr. President, I rise today to introduce the Digital Goods and Services Tax Fairness Act. I am pleased to be joined by my colleague from South Dakota, Senator Thune, in introducing this needed legislation.

The creation and consumption of downloadable digital goods, like books, songs, ringtones and video games, and the provision of digital services, like health care monitoring and cloud computing, represent a rapidly growing segment of our national economy. These goods and services, which are supporting a growing number of American jobs, are sold over communications networks that transcend numerous state and local boundaries. Tax law, not surprisingly, has failed to keep pace with the rapidly changing technology and economy. The lack of a national framework addressing how State and local taxes can be imposed upon these products has led to a confusing process that will only grow more burdensome for consumers and the providers of digital commerce as new, innovative and emerging technologies become available.

Since digital goods and services can be downloaded in a mobile environment, there is a significant question as to which jurisdiction has the authority to tax such purchases. In fact, there is substantial risk that, without a national framework, multiple States and localities will claim they have authority to tax the same digital transaction. For example, if a consumer is on vacation in another State and downloads a song, the State the consumer is visiting, the State that houses the server providing the song, and the consumer's home State could all claim the authority to tax the purchase. This is not only an unfair tax burden on the consumer, but also for the seller that is responsible for identifying the jurisdiction on whose behalf it should be collecting taxes. Left unchecked, these multiple taxes could stifle the digital commerce and crush a growing industry that is creating the good jobs that our country needs.

We can't let that happen. We need a uniform solution that will modernize our State and local tax system to appropriately address the inherent complexities that digital commerce presents.

Neutrality should guide tax policy and administration in the area of digital commerce. Transactions involving similar types of goods and services should be taxed fairly, regardless of the method and means of distribution, whether through electronic transfer or through other channels of commerce. To ensure neutrality and avoid multiple taxation, rules should be adopted to reflect the unique nature of electronic commerce and how digital goods and digital services are provided.

I am introducing the Digital Goods and Services Tax Fairness Act to establish a framework for when and how local governments can tax digital goods and services. The framework put forward in the legislation respects States' authority to tax these products while also fostering innovation and growth in this segment of global commerce.

In most cases, this legislation will use the address of the consumer to determine which jurisdiction has the authority to tax a digital purchase, as long as the State has passed a law to do so and is lawfully able under the Internet Tax Freedom Act and the Supreme Court's Quill decision. Similar to mobile phones, digital purchases should be taxed by the State the consumer resides, not the State that they may have been traveling through while they downloaded the digital product.

This legislation would also preclude discriminatory taxes from being imposed on digital goods and services solely because they are transmitted over communication networks. Additionally, this legislation would ensure that if States tax digital goods and services, they should only be taxed at the same rate imposed upon other tangible goods taxed under the general sales tax.

The Digital Goods and Services Tax Fairness Act of 2011 is structured to provide discipline, but also certainty to States and local governments that wish to tax digital commerce and to the businesses and consumers that are engaged in this marketplace. Our economy is changing in a variety of exciting ways. Congress must be responsive to this reality and consider this legislation soon.

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