As states mired in overspending problems continue to search for new sources of revenue, policymakers around the country are looking to tax digital goods. Already twenty-three states explicitly tax downloaded music, ringtones, movies, and other goods, but the upcoming year will be an important turning point in defining if and how downloaded goods will be taxed.
Thankfully, Senator Ron Wyden (D-Oregon) and Senator Jon Thune (R-South Dakota) are stepping up to deliver a national solution, which will protect digital goods from discriminatory taxes. The legislation, itroduced last Thursday May 12, would reportedly prohibit states from enacting taxes on downloads at a rate higher than the sales tax.
The bill would also mitigate the possibility of consumers paying multiple taxes on one time digital transactions. For example, it bars multiple states from taxing the same good when it passes from businesses, through servers, and to a consumer on the other side of the entire country. This follows significant precedent at the federal level, such as the Railroad Revitalization and Regulatory Reform Act of 1976 that prevents states from enacting discriminatory taxes on railroads that traverse multiple states.
Currently, of the twenty-three states that have enacted digital taxes, eight bypassed the legislature and authorized the tax through the Department of Revenue, failing to hold a vote on the matter. The Wyden-Thune bill would prevent this; ensuring tax hikes are never enacted without public scrutiny.
It is essential to make sure state tax codes do not discriminate or apply significantly high taxes on downloaded goods. The future of how we consume music, movies, books, and a whole host of services is digital. As the industry grows, a simplified tax system is necessary to ensure the overall tax burden on the goods we use daily don’t rise. Thank you to Senator Wyden and Senator Thune for leading the charge.