May 2012

Taxes: Digital Goods and Services

Avoiding Multiple Taxes on Digital Goods and Services

By: Amy McLean,

Everyone’s going digital! We’re using our wireless devices more and more these days to buy digital goods such as apps, movies, ringtones, music, movies, television shows, e-books and video games. In fact, if you downloaded an app last month, you were hardly alone. According to Xyologic , American consumers downloaded more than 617 million apps in the month of March, 2012. So it’s not surprising that state and local governments are seeing all the money we’re spending on digital goods and deciding they want a piece of the pie. It’s not rational to think one should be able to make these kinds of purchases and get off scot-free when it comes to paying taxes. But the current tax code on digital goods is murky at best, and there’s a very real danger of being taxed multiple times for the same download.

For example, say you live in New York City, but you’re on a business trip in Detroit when you buy an app, and the company that is hosting that download is in Colorado. Currently, each state, and even the cities involved with your purchase within those states, could claim that they have the right to tax you for that transaction. With state and local governments desperate for new revenue sources, that is a frightening scenario. That’s why we believe it’s important to ensure wireless consumers are treated fairly and that there should be a reasonable and sensible tax structure for digital purchases.

Currently, there’s no federal guidance for how states should handle this form of interstate commerce. But thankfully, there’s a bill that is being considered in the United States Congress that would prevent digital goods and services purchases from being subjected to these multiple and discriminatory taxes. This legislation, the ‘Digital Goods & Services Tax Fairness Act’ (S. 971 and H.R. 1860), is bipartisan in nature and was introduced into the 112th Congress last year by Senators Ron Wyden (D-OR) and John Thune (R-SD), and Representatives Lamar Smith (R-TX) and Steve Cohen (D- TN).

The bill would establish a national framework for how the growing and innovative digital marketplace should be fairly taxed at the state and local level. The legislation would make sure that consumers aren’t punished with multiple taxes on digital purchases. It reinforces Congress’s important role in making tax policy for commerce that crosses state and international borders, which is the case with digital transactions, and it’s more important than ever with so many people making online purchases with their wireless device. The bill also would clearly establish which jurisdiction (most likely the customer’s home billing address) has the right to tax digital transactions.

The sponsors of this legislation believe, and we agree, that this is common sense and pro-consumer legislation. They’re supporting this bill because it would get ahead of a potential tax nightmare for wireless users. As of 2011, 13 states have expanded their sales tax rules to specifically include digital goods and services  in their tax base. Many more states have considered, or are beginning to consider similar tax proposals. is part of a growing coalition that is trying to make sure that no matter where someone is when they hit the “buy” button, they know exactly who’s taxing them for it, and they know they are only paying taxes on this good or services once. Consumers who are interested in urging their Senators and Representatives in Washington, D.C. to support this legislation can go to and write their members of Congress directly.

The digital economy is growing at a rapid pace and is providing most of us with great opportunities and options. We don’t need to see anything, especially unfair taxes, squash that innovation and potential. One purchase, one tax. It’s a fair concept everyone can buy into.® is a national nonpartisan non-profit advocacy organization, made up of wireless consumers, businesses and community leaders from around the country, supporting reasonable pro-consumer wireless policies. To learn more, please visit