S 971

112th CONGRESS
1st Session

S. 971

To promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services.

IN THE SENATE OF THE UNITED STATES

May 12, 2011

Mr. WYDEN (for himself and Mr. THUNE) introduced the following bill; which was read twice and referred to the Committee on Finance


A BILL

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 of 2011'.

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 customer.

    (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.

    (c) Sourcing Limitation-

      (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 TRANSFER- If the charge for a digital good or digital service is aggregated with, and not separately stated from, a charge for electronically delivering or transferring 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 transfer as a non-severable and incidental component of the digital good or digital service.

    (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.

    In this Act:

      (1) CUSTOMER-

        (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.

      (6) DIGITAL SERVICE-

        (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.

        (B) EXCEPTION-

          (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.

      (7) DISCRIMINATORY TAX-

        (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 providing that service, at a higher rate than is generally imposed on or with respect to delivery charges, or shipping and handling charges, on tangible personal property.

        (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 discriminatory tax.

      (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 thereof.

      (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 Act.

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 Act.

END