H. R. 1860
To promote neutrality, simplicity, and fairness in the taxation of
digital goods and digital services.
IN THE HOUSE OF REPRESENTATIVES
May 12, 2011
Mr. SMITH of Texas (for himself, Mr. COHEN, Mr. COBLE, and Mr. HASTINGS of
Florida) introduced the following bill; which was referred to the Committee
on the Judiciary
To promote neutrality, simplicity, and fairness in the taxation of
digital goods and digital services.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `Digital Goods and Services Tax Fairness Act
SEC. 2. FINDING.
The Congress finds that it is appropriate to exercise congressional enforcement
authority under section 5 of the 14th amendment to the Constitution of the
United States and Congress' plenary power under article I, section 8, clause
3 of the Constitution of the United States (commonly known as the `commerce
clause') in order to ensure that States and political subdivisions thereof
do not discriminate against providers and consumers of digital goods and digital
services by imposing multiple, excessive and discriminatory taxes and other
burdens on such providers and consumers.
SEC. 3. MULTIPLE AND DISCRIMINATORY TAXES PROHIBITED.
No State or local jurisdiction shall impose multiple or discriminatory taxes
on or with respect to the sale or use of digital goods or digital services.
SEC. 4. RETAIL, SOURCING, AND OTHER LIMITATIONS AND RULES.
(a) Retail Limitation- Taxes on or with respect to the sale of digital goods
or digital services may only be imposed on or with respect to a sale to a
(b) Taxpayer Limitation- Taxes on or with respect to the sale of digital goods
or digital services may only be imposed on and collected only from a customer
or a seller.
(1) IN GENERAL- Taxes on or with respect to the sale of digital goods or
digital services may be imposed only by the State and local jurisdictions
whose territorial limits encompass the customer's tax address.
(2) MULTIPLE LOCATIONS- If the sale of digital goods or digital services
is made to multiple locations of a customer, whether simultaneously or over
a period of time, the seller may determine the customer's tax address or
addresses using the address or addresses of use as provided by the customer.
(3) SELLER HELD HARMLESS- A seller that relies in good faith on information
provided by a customer to determine the customer's tax address or addresses
shall not be held liable for any additional tax based on a different determination
of the customer's tax address or addresses.
(d) Limitation on Expansive Interpretation- No tax on or with respect to the
sale or use of tangible personal property, telecommunications service, Internet
access service, or audio or video programming service may be construed by
any regulation, administrative ruling, or otherwise, to be imposed on or with
respect to the sale or use of a digital good or a digital service. For purposes
of this Act, a transaction involving a digital good shall be characterized
solely as a transaction involving the provision of a digital service unless
the transaction results in the transfer or delivery of a complete copy, with
the right to use permanently or for a specified period, of the digital good
that is the subject of the transaction. No tax on or with respect to the sale
or use of a digital good may be construed by any regulation, administrative
ruling, or otherwise, to be imposed on or with respect to the sale or use
of a digital service. The limitations provided by this subsection shall not
apply to any construction of a statute that was approved by a judicial interpretation
of that statute on or before the date of the enactment of this Act.
(e) Treatment of Bundled Goods and Services-
(1) IN GENERAL- Subject to paragraph (2), if charges for digital goods or
digital services are aggregated with, and not separately stated from, charges
for other goods or services, then the charges for digital goods or digital
services may be taxed for purposes of this Act at the same rate and on the
same basis as charges for the other goods or services unless the seller
can reasonably identify the charges for the digital goods or digital services
from its books and records kept in the regular course of business.
(2) CHARGES FOR DELIVERY AND TRANSPORT- If the charge for a digital good
or digital service is aggregated with, and not separately stated from, a
charge for electronically delivering or transporting the digital good, or
providing the digital service, to the customer, then the seller may either
apply paragraph (1) or treat the service of electronic delivery or transport
as a non-severable and incidental component of the digital good or digital
(f) Treatment of Digital Code- The tax treatment of the sale of a digital
code shall be the same as the tax treatment of the sale of the digital good
or digital service to which the digital code relates. The sale of the digital
code shall be considered the sale transaction for purposes of this Act.
SEC. 5. DEFINITIONS.
(A) IN GENERAL- Subject to subparagraph (B), the term `customer' means
a person that purchases a digital good or digital service, for a purpose
other than resale.
(B) END USER- For the purpose of determining a place of primary use under
paragraph (2)(A), the term `customer' means the `end user' (as such term
is used in section 124 of title 4, United States Code) of the purchased
digital good or digital service.
(2) Customer's TAX ADDRESS- The term `customer's tax address' means--
(A) with respect to digital goods or digital services that are sold to
a customer by a provider of mobile telecommunications service that is
subject to being sourced under section 117 of title 4, United States Code,
or for which the charges are billed to the customer by such provider,
and delivered or transferred electronically by means of such provider's
mobile telecommunications service, the customer's place of primary use,
as defined in section 124 of such title;
(B) if subparagraph (A) does not apply, and if the digital good or digital
service is received by the customer at a business location of the seller,
such business location;
(C) if neither subparagraph (A) nor subparagraph (B) applies, and if the
location where the digital good or digital service is received by the
customer is known to the seller, such location;
(D) if none of subparagraphs (A) through (C) applies, the customer's address
that is either known to the seller or, if not known, obtained by the seller
during the consummation of the transaction, including the address of the
customer's payment instrument if no other address is available;
(E) if an address is neither known nor obtained as provided in subparagraph
(D), the address of the seller from which the digital good or digital
service was sold; and
(F) notwithstanding subparagraphs (A) through (E), for digital goods that
are delivered or transferred, or digital services that are provided, to
a person other than the customer, including advertising services, the
location of delivery, transfer, or provision if known or, otherwise, the
customer's address determined under subparagraph (D) or (E).
(3) DELIVERED OR TRANSFERRED ELECTRONICALLY; PROVIDED ELECTRONICALLY- The
term `delivered or transferred electronically' means delivered or transferred
by means other than tangible storage media, and the term `provided electronically'
means provided remotely via electronic means.
(4) DIGITAL CODE- The term `digital code' means a code that conveys only
the right to obtain a single type of digital good or digital service.
(5) DIGITAL GOOD- The term `digital good' means any good or product that
is delivered or transferred electronically, including software, information
maintained in digital format, digital audio-visual works, digital audio
works, and digital books.
(A) IN GENERAL- The term `digital service' means any service that is provided
electronically, including the provision of remote access to or use of
a digital good.
(i) IN GENERAL- The term `digital service' does not include telecommunications
service, Internet access service, or audio or video programming service.
(ii) AUDIO OR VIDEO PROGRAMMING- The term `audio or video programming'
means programming provided by, or generally considered comparable to
programming provided by, a radio or television broadcast station.
(iii) VIDEO PROGRAMMING- The term `video programming' shall not include
interactive on-demand services (as defined section 602(12) of the Communications
Act of 1934 (47 U.S.C. 522(12)), pay-per-view services, or services
generally considered comparable to such services regardless of the technology
used to provide such services.
(A) IN GENERAL- The term `discriminatory tax' means any tax imposed by
a State or local jurisdiction--
(i) on or with respect to the sale or use of any digital good or digital
service at a higher rate than is generally imposed on or with respect
to the sale or use of tangible personal property or of similar services
that are not provided electronically;
(ii) on or with respect to any seller of digital goods or digital services
at a higher rate or by incorporating a broader tax base than is generally
imposed on or with respect to sellers in transactions involving tangible
personal property or involving similar services that are not provided
electronically, except that this clause shall apply only to the extent
that the higher rate or broader tax base is attributable to the fact
that such person sells digital goods or digital services;
(iii) that is required to be collected with respect to the sale or use
of digital goods or digital services by different sellers or under other
terms that are disadvantageous to those applied in taxing the sale or
use of tangible personal property or of similar services that are not
provided electronically; or
(iv) on or with respect to any separately stated amount that is charged
by the seller of a specific digital good or digital service, and is
directly related to electronically delivering or transferring that good
or service, at a higher rate than is generally imposed on or with respect
to delivery charges, or shipping and handling charges, on tangible personal
(B) APPLICATION- For purposes of this paragraph, all taxes, tax rates,
exemptions, deductions, credits, incentives, exclusions, and other similar
factors shall be taken into account in determining whether a tax is a
(8) GENERALLY IMPOSED- A tax shall not be considered `generally imposed'
if it is imposed only on specific services, specific industries or business
segments, or specific types of property.
(9) MULTIPLE TAX- The term `multiple tax' means any tax that is imposed
on or with respect to the sale or use of a digital good or a digital service
by a State or local jurisdiction, for which such State or local jurisdiction
gives no credit with respect to a tax that was previously paid on or with
respect to the sale or use of such digital good or digital service to another
State or local jurisdiction, unless the territorial limits of the jurisdiction
imposing the earlier tax and the jurisdiction imposing the later tax both
encompass the same tax address of the customer.
(10) PURCHASE FOR RESALE- A digital good or digital service is purchased
for the purpose of resale if such good or service is purchased for the purpose
of reselling it, or for using it as a component part of or integration into
another digital good or digital service that is to be sold to another person,
and includes the purchase of a digital good or digital service for further
commercial broadcast, rebroadcast, streaming, restreaming, transmission,
retransmission, licensing, relicensing, reproduction, copying, distribution,
redistribution, or exhibition of the digital good or digital service, in
whole or in part, to another person.
(11) SALE AND PURCHASE- The terms `sale' and `purchase', and all variations
thereof, shall include lease, rent, and license, and corresponding variations
(12) SELLER- The term `seller' means a person making sales of tangible personal
property, digital goods, digital services, or other services, and does not
include a person that provides, on behalf of another person, order taking,
order fulfillment, billing, or electronic delivery or transfer service with
respect to the sale of a digital good or a digital service.
(13) STATE OR LOCAL JURISDICTION- The term `State or local jurisdiction'
means any of the several States, the District of Columbia, any territory
or possession of the United States, a political subdivision of any State,
territory, or possession, or any governmental entity or person acting on
behalf of such State, territory, possession, or subdivision and with the
authority to assess, impose, levy, or collect taxes.
(14) TAX- The term `tax' means any charge imposed by any State or local
jurisdiction for the purpose of generating revenues for governmental purposes,
including any tax, charge, or fee levied as a fixed charge or measured by
gross amounts charged, regardless of whether such tax, charge, or fee is
imposed on the seller or the customer and regardless of the terminology
used to describe the tax, charge, or fee. Such term does not include a tax
on or measured by net income or an ad valorem tax.
SEC. 6. FEDERAL JURISDICTION.
Notwithstanding section 1341 of title 28, United States Code, and without
regard to the amount in controversy or citizenship of the parties, a district
court of the United States has jurisdiction, concurrent with other jurisdiction
of courts of the United States and the States, to prevent a violation of this
SEC. 7. EFFECTIVE DATE; APPLICATION.
(a) General Rule- This Act shall take effect on the date of the enactment
of this Act.
(b) Application to Liabilities and Pending Cases- Nothing in this Act shall
affect liability for taxes accrued and enforced before the date of the enactment
of this Act, or affect ongoing litigation relating to such taxes, except as
provided in section 4(d) of this Act.
SEC. 8. SENSE OF CONGRESS.
It is the sense of Congress that each State shall take reasonable steps necessary
to prevent multiple taxation of digital goods and digital services in situations
where a foreign country has imposed a tax on such goods or services.
SEC. 9. SAVINGS PROVISION.
If any provision or part of this Act is held to be invalid or unenforceable
by a court of competent jurisdiction for any reason, such holding shall not
affect the validity or enforceability of any other provision or part of this