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Safeguards Against Predatory “Digi-Taxes” Advance

Nan Swift
December 20, 2013

Desperate to cover their bills from chronic overspending, too many states and municipalities are taking President Reagan’s famous “If it moves, tax it” to be a prescriptive rather than cautionary quip. As the market for digital goods such as music downloads and online subscriptions grows, so also are fears that governments could see the burgeoning marketplace as a would-be cash-cow.

These fears aren’t unfounded. For instance, cell phone users have been hit hard with unfairly high tax rates, as states and localities have scrambled to add predatory levies on wireless phone service – all to pay for projects that have little to do with improving the communications network. The average nationwide tax burden on wireless service is far above the typical rate imposed on other goods and services (click here to learn more about the Wireless Tax Fairness Act). In addition, taxing digital goods can be an especially complicated endeavor, and it’s important to ensure consumers aren’t forced to foot the bill for multiple, burdensome taxes on the same purchase.

Because the instinct of most governments is to tax first and ask questions later when encountering a potential revenue stream, it is essential that Congress get out ahead of this problem with practical guidelines. With purchases crossing state and international boundaries, there’s a clear-cut role for Congress to define the jurisdiction with the right to tax a digital transaction and ensure that costly taxes and regulations don’t impede digital commerce.

As NTU Executive Vice President Pete Sepp explains in the video below, we can’t let bad tax policies stifle the economic promise of the Internet.

To that end, Senators Ron Wyden (D-OR) and John Thune (R-SD) have introduced the Digital Goods and Services Tax Fairness Act of 2013 as S. 1364 in the Senate.  In the House, Representatives Lamar Smith (R-TX) and Steve Cohen (D-TN) have introduced a companion, H.R. 3724. Let’s hope that when Congress comes back legislators can work toward the swift passage of this common-sense bill.


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