The proposal, which Smith intends to push when Congress reconvenes next week, is co-sponsored by Rep. Steve Cohen (D-Tenn.). Sen. Ron Wyden (D-Ore.) is supporting similar legislation in the Senate.
“As technology advances, it is important that tax policies do not unfairly penalize consumers who choose to download digital goods rather than purchase their tangible counterparts,” Smith said in a statement as he introduced the bill. “This legislation promotes tax fairness and ensures that consumers are not discouraged from purchasing digital goods.”
Smith’s earlier bill was approved by the House judiciary panel in 2012, when he served as chairman. The measure did not advance, and Smith and its other backers crafted the new version to address what they agreed were shortcomings.
The National Governors Association was one of the groups that opposed the initial legislation, saying it needed a tighter definition of digital goods and adjustments to reduce the potential lost revenue to state and local governments.
The measure would have cost those jurisdictions as much as $3 billion in forgone sales tax after its first year in effect, the Congressional Budget Office reported.
The earlier bill also drew complaints that it would have infringed on states’ authority by effectively barring the sole use of regulatory or administrative means to shape sales taxes on digital goods, said Sam Whitehorn, executive director of the Download Fairness Coalition, which includes the Wireless Association and other groups pushing for the legislation.
In response to governors’ concerns, the bill’s supporters dropped a provision that would have required states to use a legislative route rather than rely on administrative authority, Whitehorn said.
The bill declares that a state may tax only sales of digital goods and services to customers with a tax address within that state. States also may not impose multiple taxes on digital goods.
The bill defines digital goods as sounds, images, data and facts maintained in digital form. Internet access service is not a digital good, the measure says.
The legislation “brings us closer to establishing a national framework guiding how state and local taxes can be imposed rationally and fairly on the digital economy,” Whitehorn said. “As the digital economy continues to grow, such a framework will ensure consumers are never subject to the nightmare scenario where someone downloading a single app or song could be taxed multiple times for the same product by competing jurisdictions.”
One contentious issue, the taxation of hotel rooms reserved through third-party Web sites, remains unresolved. The legislation says hotel intermediary services aren’t considered digital services.
Whitehorn said the bill doesn’t address whether hotel rooms purchased through such services should be subject to sales tax on the price the consumer paid or on the wholesale price the service paid earlier.
Smith, who left the judiciary panel chairmanship because of term limits House Republicans imposed on such posts, now heads the Science, Space and Technology Committee. Rep. Bob Goodlatte (R-Va.) chairs the Judiciary Committee.
Wyden is in line to head the Senate Finance Committee because its current chairman, Max Baucus, is retiring from the Senate. President Obama is nominating Baucus to become the next U.S. ambassador to China, and the Montana Democrat is expected to win Senate confirmation.
Also pending before the House Judiciary Committee is another Internet sales-tax bill, the Marketplace Fairness Act, which passed the Senate in May. It would grant states the power to require remote sellers to collect for them sales taxes at the time of purchase. It also would impose a framework for harmonizing state sales-tax rules to reduce collection burdens on retailers.
— Bloomberg News