Statement of Judiciary Committee Chairman Lamar Smith Full Committee Markup of H.R. 1860 The "Digital Goods and Services Tax Fairness Act of 2011"

Statement of Judiciary Committee Chairman Lamar Smith
Full Committee Markup of H.R. 1860
The “Digital Goods and Services Tax Fairness Act of 2011”

Chairman Smith: Daniel Webster once said that “an unlimited power to tax involves, necessarily, the power to destroy.”  Government needs revenue to fund services necessary to protect life, liberty and property.  But state tax policy should not destroy innovation and creativity.

Today we live in a digital world.  Twenty years ago, if I wanted to listen to a Lyle Lovett song, I would have to go to the local record store downtown to buy a vinyl album to play on my turntable.  Now, I can sit in the comfort of my living room and purchase a music file to play instantly on my computer.

The trend toward digital goods extends beyond music.  In 2011, Amazon announced that for the first time it sold more e-books over its Kindle platform than hardcover books, and it expects that trend to continue. 

Even services are becoming digitized.  More consumers and small businesses are using cloud computing to give employees access to data from anywhere in the world.

In addition to consumer convenience, digital goods and services benefit commerce and improve efficiency.  Digitization has allowed small businesses to expand their markets beyond local communities without expensive transportation costs. 

Digital goods involve little to no reproduction costs so they are less expensive than their tangible counterparts.  And downloadable music files have a much lighter carbon footprint than the vinyl records of the past.

The fact that consumers increasingly prefer to consume goods and services in digital rather than tangible form should not prompt states to impose unfair taxes.  State and local sales taxes should apply equally to goods or services regardless of the form in which they are consumed. 

Last year, I introduced the Digital Goods and Services Tax Fairness Act of 2011 with Mr. Cohen, the Ranking Member of the Courts, Commercial and Administrative Law Subcommittee and Mr. Coble, the chairman of that subcommittee. 

This bill prohibits states from imposing a higher tax on digital goods and services than they impose on tangible goods and services.  It also provides a uniform framework to determine where a transaction that involves digital goods takes place.

This legislation is consistent with the principles of the Internet Tax Freedom Act, which prohibits multiple or discriminatory taxation on e-commerce. 

I am concerned that without a federal guidepost, states will impose burdensome and confusing taxes on digital goods that will put American innovation at a competitive disadvantage relative to the rest of the world.

 I am grateful for the support of members of this committee for this legislation and encourage my colleagues to vote for it.