House Introduces Bill Addressing State Taxation of Digital Products

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On June 30, Rep. Rick Boucher (D-Va.) and Rep. Lamar Smith (R Tex.) introduced the Digital Goods and Services Tax Fairness Act ("Digital Fairness Act") in the U.S. House of Representatives. The bill, in large part, is designed to provide greater certainty and simplicity to the taxation of digital goods and services, and purports to ensure that digital products and services are not taxed more heavily than products bought in "brick and mortar" stores. If enacted, the Digital Fairness Act could radically alter the sales tax treatment of electronic commerce, and signal a significant increase in federal involvement in the sales and use tax arena.

The Digital Fairness Act would impose some important limits on the manner in which states can tax digital goods or services. The bill includes a prohibition on multiple or discriminatory state or local taxes with respect to digital goods or services. The bill defines "multiple tax" as any tax imposed on the transaction where no credit is given for comparable taxes paid to other states.2 It further defines "discriminatory tax" to include a tax that is imposed by a jurisdiction on a digital good or service that is at a higher rate than is generally imposed on or with respect to the sale or use of tangible personal property or of similar services that are not delivered or transferred electronically.3 In addition, the bill would put a total prohibition on any state or local taxes on the sale or use of certain specified digital services—namely, digital medical services, digital education services, and digital energy management services.

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