House Subcommittee Examines Digital Goods Tax Bill

WASHINGTON, May 24, 2011 - The Subcommittee on Courts, Commercial and Administrative Law held a hearing Monday on a bill that would define limits on taxes for virtual goods and services on the Internet.

Rep. Lamar Smith (R-TX) sponsored the proposed legislation, known as the “Digital Goods and Services Tax Fairness Act of 2011." The measure aims to “promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services.” The legislation would restrict taxing authority to the jurisdiction of the customer's tax address.

Witnesses Robert Atkinson, President of the, D.C.-based Information Technology & Innovation Foundation (ITIF), and James Eads, Jr., Director of Public Affairs for Ryan, LLC, favorably supported the proposed legislation.

“By creating a fairer and more consistent tax system for digital goods, this legislation will promote and sustain our growing digital economy,” said Atkinson during the hearing.

Eads emphasized the need for certainty regarding taxation and digital commerce among consumers, businesses, Internet service providers, and state and local taxing authorities.

“Complexities that arise and transcend state boundaries cry out for a solution,” said Mr. Eads.

Russ Brubaker, National Tax Policy Advisor with the Washington State Department of Revenue, opposed the bill. Brubaker expressed concern that the bill would create the unfairness it opposed and limit local taxation activity.

“This Act prohibits or preempts perfectly legitimate state taxing authority,” said Mr. Brubaker.