It’s a fundamental tenet of tax reform that productive economic activity should be taxed once but only once. Of course, today we’re stuck with a pretty awful tax code that taxes economic production not once but with a gauntlet of taxes that can last even after your death.
We got here because of the greed of politicians who simply have used the tax code as a way to mask their fiscal irresponsibility. It’s never been a question of whether or not government should be spending money on a particular program. It’s always been a matter of “we need to find more money from somewhere, and fast.”
So we’re saddled with the accumulated detritus of this tax code until someday a sufficient number of bold leaders amass enough political capital to take on the hard slog of tax reform.
Something even worse, however, is shaping up in the world of digital transactions.
Just as economic production should be taxed only once, a retail sales transaction should be taxed only once as well, and by only a single tax jurisdiction. Let’s say your phone number is based in Texas, but you happen to be in California when you buy an app on your mobile phone, and the app comes from a server in Virginia—right now all three states could attempt to assess their own sales taxes on that single transaction.
And, unfortunately, right now there is nothing stopping this from happening. Instead, we have a patchwork of conflicting state laws and policies that pose a serious threat to the burgeoning world of ecommerce through the threat of multiple, duplicative taxation. Now is the time to stop it before it becomes yet another entrenched tax problem.
On June 28th the House Judiciary Committee marked up the Digital Goods & Services Tax Fairness Act (H.R. 1860), which would establish federal rules to protect consumers from being taxed by multiple jurisdictions on the same transaction. This is precisely the active obligation placed upon the federal government by the Commerce Clause, to make sure states don’t erect barriers to discourage interstate commerce.
Right now the states are looking for more revenue, and digital goods and services are at the top of their lists. It’s time for the federal government to step up and protect consumers from the threat of unfair, duplicative taxes on their digital purchases.
July 11, 2012