Short title

This Act may be cited as the

Digital Goods and Services Tax Fairness Act of 2010

Findings

The Congress finds the following: (1)Consumers, businesses, and other participants engaged in electronic commerce may be subject to multiple, confusing, and burdensome taxation because of inconsistent rules among thousands of State and local jurisdictions and disparate treatment of digital goods and digital services. (2)A consistent framework for taxation is needed that will not impede electronic commerce and the sale of digital goods and digital services, by preventing multiple taxation, and providing greater certainty and simplicity. (3)Neutrality should guide tax policy and administration in this area. Transactions involving similar types of goods and services should be taxed fairly, regardless of the method and means of distribution, whether through electronic transfer or through other channels of commerce. New or different taxes on electronic transactions should be barred. (4)To ensure neutrality and avoid multiple taxation, certain rules should be adapted to reflect the unique nature of electronic commerce and how digital goods and digital services are provided. (5)To recognize the critical role that online health, energy management, and education services will play in our economy, these services should be exempt from all State and local taxes.

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.

Retail, sourcing, and other limitations

(a)

Retail limitation

Taxes on or with respect to the sale or use of digital goods or digital services may be imposed only on or with respect to a sale to, or use by, a customer. (b)

Sourcing limitation

(1)

In general

Taxes on or with respect to the sale or use 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. This limitation shall be deemed satisfied if sourcing is determined by a seller pursuant to State sourcing rules adopted pursuant to the Streamlined Sales and Use Tax Agreement. (2)

Tax address

The customer’s tax address shall be— (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 of the United States Code, and furnished to the customer in conjunction with such provider’s mobile telecommunications service, the customer’s place of primary use, as defined in section 124 of title 4 of the United States Code; (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 or digital services that are delivered to a person other than the customer, including advertising services, the delivery location if known or, otherwise, the customer’s address determined under subparagraph (D) or (E). (c)

Limit 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. 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 that was approved by a judicial determination made on or before June 30, 2010. (d)

Certain taxes prohibited

No tax shall be imposed on or with respect to the sale or use of digital medical services, digital education services, or digital energy management services.

Bundled goods and services

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.

Definitions and other special rules

For the purposes of this Act, the following definitions and rules apply: (1)

Customer

The term customer means a person that purchases a digital good or digital service, for a purpose other than resale. For the purpose of determining a place of primary use under section 4(b)(2)(A), customer means the end user, as such term is used in section 124 of title 4 of the United States Code, of the purchased digital good or digital service. For purposes of this definition, purchase for resale includes purchase of a digital good or digital service for further commercial broadcast, rebroadcast, 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. (2)

Delivered or transferred electronically

The term delivered or transferred electronically means delivered or transferred to the customer by means other than tangible storage media. It is not necessary that the product or service be physically transferred to the customer, provided that the customer may access or remotely use the product or service. (3)

Digital good and digital service

The term digital good means any good or product that is delivered or transferred electronically to the customer, including software, information maintained in digital format, digital audio-visual works, digital audio works, and digital books; and the term digital service means any service that is delivered or transferred electronically to the customer, including the provision of remote access to or use of a digital good, but the term digital service does not include telecommunications service, Internet access service, or audio or video programming service. For purposes of this section, audio or video programming means programming provided by, or generally considered comparable to programming provided by, a radio or television broadcast station. Video programming shall not include interactive on-demand services, pay-per-view services, or services generally considered comparable to such services regardless of the technology used to provide such services. (4)

Digital education service

The term digital education service means a primary, secondary, undergraduate, postgraduate, or professional educational service delivered or transferred electronically to a practitioner or student. (5)

Digital energy management service

The term digital energy management service means a service that utilizes digital information to manage a customer’s energy use, to allow a customer to respond to energy market information or circumstances, or to identify customer demand with particular energy supply. (6)

Digital medical service

The term digital medical service means a health care, health information, or health education service that is delivered or transferred electronically to a practitioner, researcher, or patient. (7)

Digital code

The term digital code means a code that conveys to a customer only the right to obtain a digital good or digital service. A digital code may be obtained by any means, including by email or by tangible means regardless of its designation as song code, video code, or book code. The tax treatment of the sale or use of a digital code shall be the same as the tax treatment 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. (8)

Discriminatory tax

The term discriminatory tax means any tax imposed by a State or local jurisdiction— (A)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 delivered or transferred electronically; (B)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 delivered or transferred electronically. This provision applies 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; or (C)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 delivered or transferred electronically.

For purposes of this subsection, 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.

(9)

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. (10)

Multiple tax

The term multiple tax means any tax with respect to which no credit is given for comparable taxes paid to other States or local jurisdictions on the same transaction. Taxes imposed by physically overlapping State or local jurisdictions shall not be considered to be multiple taxes by reason of being applied within the overlapping area. (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. (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 governmental entity for the purpose of generating revenues for governmental purposes, including any tax, charge, or fee levied by a taxing jurisdiction as a fixed charge for each customer or measured by gross amounts charged to customers, regardless of whether such tax, charge, or fee is imposed on the vendor or customer and regardless of the terminology used to describe the tax, charge, or fee. The term tax does not include a tax on or measured by net income or an ad valorem tax.

Federal jurisdiction

Notwithstanding section 1341 of title 28 of the 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.

Regulations

The Secretary of Commerce, in consultation with the Secretary of the Treasury, shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this Act. In promulgating any regulations under this Act, the Secretary shall also seek the consultation of the Executive Director of the Governing Board of the Streamlined Sales Tax Project.

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 affects liability for taxes accrued and enforced before the date of enactment of this Act, or affects ongoing litigation relating to such taxes, except as provided in section 4(c) of this Act.

10.

Sense of the Congress

It is the sense of the 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.