You can’t listen to the news without hearing reports of the many ways in which your taxes are about to increase. But unless Congress acts, you may start paying a tax multiple times on the very same transaction. In other words, you could soon be paying sales tax over and over on the same item.
It’s a fundamental tenet of tax reform that productive economic activity should be taxed only once. Of course, today we’re stuck with an awful federal 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.
Something even worse, however, is shaping up in the world of digital transactions.
States are on a course to levy and collect sales tax—the same tax on the same transaction multiple times. Just as economic production should be taxed only once, a retail sales transaction should be taxed only once, 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 tax on that single transaction.
Nothing is stopping this from happening, because we have a patchwork of conflicting state laws and policies that pose a serious threat to the burgeoning world of e-commerce and interstate commerce through the threat of multiple, duplicative and even discriminatory taxation. Now is the time to stop it before it becomes yet another entrenched tax problem. Making sure states don’t erect barriers to discourage interstate commerce is precisely the active obligation placed upon the federal government by the Commerce Clause.
Thankfully, on June 28 the House Judiciary Committee moved the Digital Goods & Services Tax Fairness Act (H.R. 1860) forward, which would establish federal rules to protect consumers from being taxed by multiple jurisdictions on the same transaction and prevents states from discriminating against e-commerce by charging a higher tax on electronic goods than they do on the same physical good.
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 19, 2012