States are looking everywhere for new revenues, and they’re creating commissions to study their tax code. In South Carolina, the Tax Realignment Commission (TRAC) has proposed to tax a host of new digital goods, including “Digital products,” “Computer software” and “Data processing”.
But it doesn’t make sense to add taxes to digital downloads, which are the greenest way you can get music, movies, books, games, and software. Instead, states should be encouraging behavior that avoids round-trips in the car, warehousing, and the use of plastic and packaging. Moreover, some state tax administrators wrongly contend that digital goods are the equivalents of offline products.
Finally, these bills place in-state businesses at a disadvantage to out-of-state competitors, who wouldn’t have to collect the sales tax when selling the same downloads to in-state customers.
So far this year, Illinois, New York, Oklahoma and Virginia explicitly rejected new taxes on digital products. But states should go further, and exempt digital goods from taxation. North Dakota and Wyoming passed legislation doing just that, largely to create an advantage for economic development purposes.
NetChoice letter to legislators on digital goods bills in 2010:
What’s wrong? Privacy legislation that sets information collection defaults will harm the growth of online commerce.
