Legislation in Congress would create a common sense framework for state taxation of interstate sales of digital goods and services. It would thereby stave off taxation of the same transactions for digital goods and services by multiple states. Importantly, the bill would not impose any new taxes or mandate tax or no-tax decisions by individual states. For the sake of consumers and the future of the digital economy, let's hope this bill gains traction in Congress.
S. 1364 – the "Digital Goods and Services Tax Fairness Act" – would set sourcing rules for determining when states have jurisdiction to tax retailers or taxpaying consumers. Again, this would prohibit multiple states from imposing taxes on the same transaction.
The bill would also require states that decide to tax such transactions to clearly make that determination through legislation. Taxation of digital goods through state tax department interpretations would be impermissible.
Finally, S. 1364 would ban discriminatory state taxes on the sale or use of digital goods or services. That is, it would prohibit the sale or use of digital goods or services from being specially taxed or taxed at a rate higher than similar goods or services that are not provided electronically.
In my Perspectives from FSF Scholars essay, "Digital Downloads Should Be Protected From Discriminatory and Duplicate Taxes," I explained the merits of this type of legislation in a bit more detail. Similar legislation was introduced in the last Congress. It is encouraging that members of Congress are again taking up this matter.