Digital Goods Tax Legislation Rebooted on Capitol Hill.

• Author: Belarmino, Michael
• Position: Federal Focus

Any legislation introduced in the U.S. Congress generally has the potential to experience an endless cycle of reintroduction every two years, unless they are among the lucky few that become law during a congressional session. In the case of several bills relating to GFOAs priorities, constant reintroduction is preferred, in the hope that through vigorous advocacy they too will become law. However, the potential reintroduction of certain other bills is not always welcome, keeping state and local government advocates in a constant state of vigilance. The Digital Goods and Services Tax Fairness Act of 2019 is one such bill where the latter applies.

HISTORY OF THE LEGISLATION

H.R. 1725 and its Senate companion, S. 765, are the current versions of a tax bill that GFOA and others in the state and local community have long opposed as a solution in search of a problem. Prior versions of the bill date back as far as 2009. Proponents of the measure claim the legislation is necessary because there is no national framework to govern the taxation of digital transactions. The primary purpose of the framework would be to prevent multiple states and local governments from claiming that they have the authority to tax the same digital transaction, which purportedly would result in a myriad of taxes on the consumer.

One of the main hypothetical situations proponents of the bill use to demonstrate that it is needed is a consumer who decides to purchase and download a song while on vacation. In this situation, bill proponents claim that the state the consumer is visiting, the state where the server providing the song is located, and the consumer's home state could all decide to tax the purchase. There are two initial problems with this scenario, however. The first is that despite digital downloads being around for over a decade, bill proponents have not provided any data to show that this in fact is happening--not to mention that the nature of "downloading" music is changing, since there are many more streaming services today than there were ten years ago. Second, it appears that it would take a significant amount of effort and a high level of sophistication for a state (or a local government) to track and audit the scenario described above to ensure that the correct taxes were collected.

This legislation tracks similar previously introduced bills that have one common underlying theme: technology --or more specifically, the explosive advances in technology that...