Retailers rally for simplified online tax code

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Retailers rally for simplified online tax code
Retailers rally for simplified online tax code

E-commerce retailers and wireless companies are teaming up to lobby Congress to simplify the taxation process for digital goods, such as MP3s, e-books, mobile apps and games. Working with various industry groups, the companies are supporting legislation that would simplify the tax code for digital items. 

"Nobody likes taxes, but good tax policy is neutral, fair and easy for everyone to understand," said Maureen Riehl, VP of the government and industry relations counsel at the National Retail Federation. "When this isn't the case, there's a problem. In this emerging digital market, it's almost an interstate commerce issue. It'll be up to Congress to decide when and how states can tax digital goods." 

Among the online taxation bills being considered by Congress is the Digital Goods and Services Tax Fairness Act, which was introduced in May by Sens. Ron Wyden (D-Ore.) and John Thune (R-N.D.) and US Reps. Lamar Smith (R-Texas) and Steve Cohen 
(D-Tenn.). The bill would establish a national tax framework for digital goods, preventing states and municipalities from levying their own additional taxes on goods sold online. 

Consumers who buy goods and apps online are now subject to multiple taxes on their purchases, based on their location at the time of purchase, their billing address, and the server from which they buy an item online. The Download Fairness Coalition, a 
Washington, D.C.-based lobbying group formed earlier this year, is supporting the Digital Goods and Services Tax Fairness Act. Supported by a number of online sales and wireless companies, including Verizon, and Apple, it considers taxing digital goods at higher rates than their tangible counterparts' "discriminatory taxation."

"Our goal is to ensure states have a clear, fair tax structure, if they choose to tax digital goods at all," said Sam Whitehorn, executive director of the Download Fairness Coalition. "I just saw a study that estimated the digital economy at 50 billion digital purchases in 2011 and 100 billion by 2013. That's an enormous amount of small transactions that add up to a lot of money. Taxation is an issue to resolve before this industry grows even more."

Although states would ultimately decide whether to tax digital goods under the legislation submitted by Wyden, Thune, Smith and Cohen, the group's goal is to set a national framework where consumers who buy a digital album, for instance, should be taxed only once at the same state sales tax rates as consumers who buy a CD in a store. 

"The digital space is so new that the government hasn't known how to regulate it," said Brian Johnston, director of advocacy at, a nonprofit consumer advocacy coalition. He added that digital transactions are taxed at telecom rates of 18% to 20%, instead of the typical sales tax of 6% to 10%, and other digital services are also taxed at higher rates than offline goods. 

"The monthly tax rate on American wireless consumers is more than 16% nationally on average, compared to the sales tax rate, which averages 7%," he said, adding that research shows 75% of consumers know little about digital download taxes.


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