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Oppose Tax Hikes on Digital Goods!
An Open Letter to the Connecticut General Assembly:
March 15, 2012
On behalf of our organizations’ thousands of members in Connecticut, we write to express our staunch opposition to Raised Senate Bill 400 (SB 400). SB 400 contains a dramatic expansion of Connecticut’s sales taxes to cover a wide variety of digital goods and services purchased over the Internet. This expansion would expose digital products to multiple levels of taxation, unnecessarily complicate Connecticut’s tax code, and threaten to drive technology jobs and investment to states whose burdens are significantly lower.
While the digital economy is booming with millions of apps, songs, and movies downloaded daily, SB 400 would place Connecticut at a serious competitive disadvantage. By applying the state’s 6.35 percent sales tax to digital goods, SB 400 encourages consumers and businesses to seek out-of-state vendors for such goods. Connecticut’s existing 1 percent sales tax on digital services creates complexity, leaving businesses to figure out which products or services are taxed at which rates. To these businesses, boosting the rate more than six-fold would likely not fit the definition of true “simplification.”
Furthermore, the problem for consumers is they may face multiple taxes for a single digital download because the taxing jurisdiction on digital products is not always clear. For example, if a Connecticut resident downloads a movie to watch on their iPad while waiting for a flight in Dulles Airport, that person could theoretically be charged taxes by Connecticut while also facing levies in Virginia where the airport is located, and Texas, where the movie company's servers are located. Making customers pay taxes several times for one download is not just unfair, it’s bad tax policy that threatens to weaken one of the few vibrant sectors of the economy -- the digital realm.
The digital economy enables businesses to attract customers from across the globe, allowing them to physically locate their company in the best possible tax environment. Connecticut currently has the highest combined state and local tax burden in the nation. Nutmeg State businesses are already subject to a 7.5 percent corporate income tax plus a 20 percent surcharge that raises the effective rate to 9 percent. The additional burdens on digital products imposed by SB 400 will further dissuade small business start-ups from investing scarce resources into Connecticut.
We urge you to oppose the damaging tax hikes on digital goods and services contained in SB 400. They will harm Connecticut’s consumers, businesses, and its future economic vitality.