[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 3581 Introduced in Senate (IS)]

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115th CONGRESS
  2d Session
                                S. 3581

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


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            October 11, 2018

 Mr. Thune (for himself and Mr. Wyden) 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 2018''.

SEC. 2. MULTIPLE AND DISCRIMINATORY TAXES PROHIBITED.

    (a) Multiple Taxes.--No State or local jurisdiction shall impose 
multiple taxes on the sale or use of a covered electronic good or 
service.
    (b) Discriminatory Taxes.--No State or local jurisdiction shall 
impose discriminatory taxes on the sale or use of a digital good or a 
digital service.

SEC. 3. SOURCING LIMITATION.

    Subject to section 6(a), taxes on the sale of a covered electronic 
good or service may only be imposed by a State or local jurisdiction 
whose territorial limits encompass the customer tax address.

SEC. 4. CUSTOMER TAX ADDRESS.

    (a) Seller Obligation.--
            (1) In general.--Subject to subsection (e)(2), a seller 
        shall be responsible for obtaining and maintaining in the 
        ordinary course of business the customer tax address with 
        respect to the sale of a covered electronic good or service, 
        and shall be responsible for collecting and remitting the 
        correct amount of tax for the State and local jurisdictions 
        whose territorial limits encompass the customer tax address if 
        the State or local jurisdiction has the authority to require 
        such collection and remittance by the seller.
            (2) Certain transactions.--When a customer tax address is 
        not a business location of the seller under clause (i) of 
        section 7(4)(A)--
                    (A) if the sale is a separate and discrete 
                transaction, then a seller shall use reasonable efforts 
                to obtain a customer tax address, as such efforts are 
                described in clauses (iii), (iv), and (v) of section 
                7(4)(A), before resorting to using a customer tax 
                address as determined by clause (vi) of such section 
                7(4)(A); and
                    (B) if the sale is not a separate and discrete 
                transaction, then a seller shall use reasonable efforts 
                to obtain a customer tax address, as such efforts are 
                described in clauses (ii), (iii), (iv), and (v) of 
                section 7(4)(A), before resorting to using a customer 
                tax address as determined by clause (vi) of such 
                section 7(4)(A).
    (b) Reliance on Customer-Provided Information.--A seller that 
relies in good faith on information provided by a customer to determine 
a customer tax address shall not be held liable for any additional tax 
based on a different determination of that customer tax address by a 
State or local jurisdiction or court of competent jurisdiction, unless 
and until binding notice is given as provided in subsection (c).
    (c) Address Correction.--If a State or local jurisdiction is 
authorized under State law to administer a tax, and the jurisdiction 
determines that the customer tax address determined by a seller is not 
the customer tax address that would have been determined under section 
7(4)(A) if the seller had the additional information provided by the 
State or local jurisdiction, then the jurisdiction may give binding 
notice to the seller to correct the customer tax address on a 
prospective basis, effective not less than 45 days after the date of 
such notice, if--
            (1) when the determination is made by a local jurisdiction, 
        such local jurisdiction obtains the consent of all affected 
        local jurisdictions within the State before giving such notice 
        of determination; and
            (2) before the State or local jurisdiction gives such 
        notice of determination, the customer is given an opportunity 
        to demonstrate in accordance with applicable State or local tax 
        administrative procedures that the address used is the customer 
        tax address.
    (d) Coordination With Sourcing of Mobile Telecommunications 
Service.--
            (1) In general.--If--
                    (A) a covered electronic good or service is sold to 
                a customer by a home service provider of mobile 
                telecommunications service that is subject to being 
                sourced under section 117 of title 4, United States 
                Code, or the charges for a covered electronic good or 
                service are billed to the customer by such a home 
                service provider; and
                    (B) the covered electronic good or service is 
                delivered, transferred, or provided electronically by 
                means of mobile telecommunications service that is 
                deemed to be provided by such home service provider 
                under section 117 of such title,
        then the home service provider and, if different, the seller of 
        the covered electronic good or service, may presume that the 
        customer's place of primary use for such mobile 
        telecommunications service is the customer tax address 
        described in section 7(4)(A)(ii) with respect to the sale of 
        such covered electronic good or service.
            (2) Definitions.--For purposes of this subsection, the 
        terms ``home service provider'', ``mobile telecommunications 
        service'', and ``place of primary use'' have the same meanings 
        as in section 124 of title 4, United States Code.
    (e) Multiple Locations.--
            (1) In general.--If a digital service, audio or video 
        programming service, or VoIP service is sold to a customer and 
        available for use by the customer in multiple locations 
        simultaneously, the seller may determine the customer tax 
        addresses using a reasonable and consistent method based on the 
        addresses of use as provided by the customer and determined in 
        agreement with the customer at the time of sale or at a later 
        time.
            (2) Direct customer payment.--
                    (A) Establishment of direct payment procedures.--
                Each State and local jurisdiction shall provide 
                reasonable procedures that permit the direct payment by 
                a qualified customer, as determined under procedures 
                established by the State or local jurisdiction, of 
                taxes that are on the sale of covered electronic goods 
                or services to multiple locations of the customer and 
                that would, absent such procedures, be required or 
                permitted by law to be collected from the customer by 
                the seller.
                    (B) Effect of customer compliance with direct 
                payment procedures.--When a qualified customer elects 
                to pay tax directly under the procedures established 
                under subparagraph (A), the seller shall--
                            (i) have no obligation to obtain the 
                        multiple customer tax addresses under 
                        subsection (a); and
                            (ii) not be liable for such tax, provided 
                        the seller follows the State and local 
                        procedures and maintains appropriate 
                        documentation in its books and records.

SEC. 5. TREATMENT OF BUNDLED TRANSACTIONS, DIGITAL CODES, AND OTHER 
              RULES.

    (a) Bundled Transaction.--If a charge for a distinct and 
identifiable covered electronic good or service is aggregated with and 
not separately stated from one or more charges for other distinct and 
identifiable goods or services, which may include other covered 
electronic goods or services, and any part of the aggregation is 
subject to taxation, then the entire aggregation may be subject to 
taxation, except to the extent that the seller can identify, by 
reasonable and verifiable standards, one or more charges for the 
nontaxable goods or services from its books and records kept in the 
ordinary course of business.
    (b) 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 covered 
electronic good or service to which the digital code relates.
    (c) Application of Fixed Charges to VoIP Service.--With respect to 
VoIP service, if any tax is based on a fixed charge, such fixed charge 
shall be based on the number of simultaneous outbound calls the 
customer has purchased the right to place, regardless of actual usage 
or the number of the customer's phone numbers.
    (d) Rule of Construction.--The sale of a digital code shall be 
considered the sale transaction for purposes of this Act.

SEC. 6. NO INFERENCE.

    (a) Customer Liability.--Subject to the prohibition provided in 
section 2, nothing in this Act modifies, impairs, supersedes, or 
authorizes the modification, impairment, or supersession of any law 
allowing a State or local jurisdiction to impose tax on and collect tax 
directly from a customer based upon use of a covered electronic good or 
service in such State.
    (b) Non-Tax Matters.--This Act shall not be construed to apply in, 
or to affect, any non-tax regulatory matter or other context.
    (c) State Tax Matters.--The definitions contained in this Act are 
intended to be used with respect to interpreting this Act. Nothing in 
this Act shall prohibit a State or local jurisdiction from adopting 
different nomenclature to enforce the provisions set forth in this Act.
    (d) Internet Tax Freedom Act.--Nothing in this Act modifies, 
impairs, supersedes, or authorizes the modification, impairment, or 
supersession of the Internet Tax Freedom Act (47 U.S.C. 151 note).

SEC. 7. DEFINITIONS.

    In this Act, the following definitions shall apply:
            (1) Audio or video programming service.--The term ``audio 
        or video programming service'' means programming provided by, 
        or generally considered comparable to programming provided by, 
        a radio or television broadcast station, regardless of the 
        facilities used to deliver or provide such service.
            (2) Covered electronic good or service.--The term ``covered 
        electronic good or service'' means a digital good, digital 
        service, audio or video programming service, or VoIP service.
            (3) Customer.--The term ``customer'' means a person that 
        purchases a covered electronic good or service or digital code.
            (4) Customer tax address.--
                    (A) In general.--The term ``customer tax address'' 
                means--
                            (i) with respect to the sale of a covered 
                        electronic good or service that is received by 
                        the customer at a business location of the 
                        seller, such business location;
                            (ii) if clause (i) does not apply and the 
                        primary use location of the covered electronic 
                        good or service is known by the seller, such 
                        location;
                            (iii) if neither clause (i) nor clause (ii) 
                        applies, and if the location where the covered 
                        electronic good or service is received by the 
                        customer, or by a donee of the customer that is 
                        identified by such customer, is known to the 
                        seller and maintained in the ordinary course of 
                        the seller's business, such location;
                            (iv) if none of clauses (i) through (iii) 
                        applies, the location indicated by an address 
                        for the customer that is available from the 
                        business records of the seller that are 
                        maintained in the ordinary course of the 
                        seller's business, when use of the address does 
                        not constitute bad faith;
                            (v) if none of clauses (i) through (iv) 
                        applies, the location indicated by an address 
                        for the customer obtained during the 
                        consummation of the sale, including the address 
                        of a customer's payment instrument, when use of 
                        this address does not constitute bad faith; or
                            (vi) if none of clauses (i) through (v) 
                        applies, including the circumstance in which 
                        the seller is without sufficient information to 
                        apply such paragraphs, one of the following 
                        locations, as selected by the seller, provided 
                        that such location is consistently used by the 
                        seller for all such sales to which this clause 
                        applies:
                                    (I) The location in the United 
                                States of the headquarters of the 
                                seller's business.
                                    (II) The location in the United 
                                States where the seller has the 
                                greatest number of employees.
                                    (III) The location in the United 
                                States--
                                            (aa) from which the seller 
                                        makes digital goods available 
                                        for electronic delivery; or
                                            (bb) from which digital 
                                        services, VoIP services, or 
                                        audio or video programming 
                                        services are provided 
                                        electronically.
                    (B) Exclusion.--For purposes of this paragraph, the 
                term ``location'' does not include the location of a 
                server, machine, or device, including an intermediary 
                server, that is used simply for routing or storage.
            (5) Delivered or transferred electronically; provided 
        electronically.--The term ``delivered or transferred 
        electronically'' means the delivery or transfer of a digital 
        good by means other than tangible storage media, and the term 
        ``provided electronically'' means the provision of a digital 
        service, audio or video programming service, or VoIP service 
        remotely via electronic means.
            (6) Digital code.--The term ``digital code'' means a code 
        that conveys only the right to obtain a covered electronic good 
        or service without making further payment.
            (7) Digital good.--The term ``digital good'' means any 
        software or other good that is delivered or transferred 
        electronically, including sounds, images, data, facts, or 
        combinations thereof, maintained in digital format, where such 
        software or other good is the true object of the transaction, 
        rather than the activity or service performed to create such 
        software or other good, that results in the delivery to the 
        customer of a complete copy of such software or other good, 
        with the right to use permanently or for a specified period, 
        and includes, as an incidental component, charges for the 
        delivery or transfer of such software or other good.
            (8) 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, and includes, as an incidental component, charges 
                for the electronic provision of the digital service to 
                the customer.
                    (B) Exceptions.--The term ``digital service'' does 
                not include a service that is predominantly 
                attributable to the direct, contemporaneous expenditure 
                of live human effort, skill, or expertise, a 
                telecommunications service, an ancillary service, 
                Internet access, audio or video programming service, or 
                a hotel intermediary service.
                    (C) Clarifying definitions.--For purposes of 
                subparagraph (B)--
                            (i) the term ``ancillary service'' means a 
                        service that is associated with or incidental 
                        to the provision of telecommunications 
                        services, including, but not limited to, 
                        detailed telecommunications billing, directory 
                        assistance, vertical service, and voice mail 
                        services;
                            (ii) the term ``hotel intermediary 
                        service''--
                                    (I) means a service provided by a 
                                person that facilitates the sale, use, 
                                or possession of a hotel room or other 
                                transient accommodation to the general 
                                public; and
                                    (II) does not include the purchase 
                                of a digital service by a person who 
                                provides a hotel intermediary service 
                                or by a person who owns, operates, or 
                                manages hotel rooms or other transient 
                                accommodations;
                            (iii) the term ``Internet access'' means 
                        any service included within the definition of 
                        the term ``internet access'' under section 
                        1105(5) of the Internet Tax Freedom Act (47 
                        U.S.C. 151 note); and
                            (iv) the term ``telecommunications 
                        service''--
                                    (I) means the electronic 
                                transmission, conveyance, or routing of 
                                voice, data, audio, video, or any other 
                                information or signals to a point, or 
                                between or among points;
                                    (II) includes such transmission, 
                                conveyance, or routing in which 
                                computer processing applications are 
                                used to act on the form, code, or 
                                protocol of the content for purposes of 
                                transmission, conveyance, or routing, 
                                without regard to whether such service 
                                is referred to as VoIP service; and
                                    (III) does not include data 
                                processing and information services 
                                that allow data to be generated, 
                                acquired, stored, processed, or 
                                retrieved and delivered by an 
                                electronic transmission to a purchaser 
                                where such purchaser's primary purpose 
                                for the underlying transaction is the 
                                processed data or information.
            (9) Discriminatory tax.--
                    (A) In general.--The term ``discriminatory tax'' 
                means any tax imposed by a State or local jurisdiction 
                on digital goods or digital services that--
                            (i) is not generally imposed and legally 
                        collectible by such State or local jurisdiction 
                        on transactions involving similar property, 
                        goods, or services accomplished through other 
                        means;
                            (ii) is not generally imposed and legally 
                        collectible at the same or higher rate by such 
                        State or local jurisdiction on transactions 
                        involving similar property, goods, or services 
                        accomplished through other means;
                            (iii) imposes an obligation to collect or 
                        pay the tax on a person, other than the seller, 
                        that the State or local jurisdiction would not 
                        impose in the case of transactions involving 
                        similar property, goods, or services 
                        accomplished through other means;
                            (iv) establishes a classification of 
                        digital services or digital goods providers for 
                        purposes of establishing a higher tax rate to 
                        be imposed on such providers than the tax rate 
                        generally imposed on providers of similar 
                        property, goods, or services accomplished 
                        through other means; or
                            (v) does not provide a resale and component 
                        part exemption for the purchase of digital 
                        goods or digital services in a manner 
                        consistent with the State's resale and 
                        component part exemption applicable to the 
                        purchase of similar property, goods, or 
                        services accomplished through other means.
                    (B) Clarification.--For purposes of this paragraph, 
                any tax that is limited in its application to only 
                certain services, providers, or industries shall not be 
                considered to be generally imposed, with the exception 
                of any State tax which is imposed--
                            (i) in lieu of a generally imposed tax; and
                            (ii) at a rate which is not greater than 
                        the rate of such tax.
            (10) Local jurisdiction.--
                    (A) In general.--The term ``local jurisdiction'' 
                means--
                            (i) any municipality, city, county, 
                        township, parish, transportation district, or 
                        assessment jurisdiction;
                            (ii) any other local jurisdiction in the 
                        territorial jurisdiction of the United States 
                        with the authority to impose a tax; and
                            (iii) any governmental entity or person 
                        acting on behalf of an entity described in 
                        clause (i) or (ii) and with the authority to 
                        assess, impose, levy, or collect taxes.
                    (B) Exception.--The term ``local jurisdiction'' 
                shall not include a State.
            (11) Multiple tax.--
                    (A) In general.--The term ``multiple tax'' means 
                any tax that is imposed by one State, one or more of 
                that State's local jurisdictions, or both on the same 
                or essentially the same covered electronic good or 
                service that is also subject to tax imposed by another 
                State, one or more local jurisdictions in such other 
                State (whether or not at the same rate or on the same 
                basis), or both, without a credit for taxes paid in 
                other jurisdictions.
                    (B) Exception.--The term ``multiple tax'' shall not 
                include a tax imposed by a State and one or more 
                political subdivisions thereof on the same covered 
                electronic good or service or a tax on persons engaged 
                in selling covered electronic goods or services which 
                also may have been subject to a sales or use tax 
                thereon.
            (12) Primary use location.--
                    (A) In general.--The term ``primary use location'' 
                means a street address representative of where the 
                customer's use of a covered electronic good or service 
                will primarily occur, which shall be the residential 
                street address or a business street address of the 
                actual end user of the covered electronic good or 
                service, including, if applicable, the address of a 
                donee of the customer that is designated by the 
                customer.
                    (B) Customers that are not individuals.--For the 
                purpose of subparagraph (A), if the customer is not an 
                individual, the primary use location is determined by 
                the location of the customer's employees or equipment 
                (machine or device) that make use of the covered 
                electronic good or service, but does not include the 
                location of a person who uses the covered electronic 
                good or service as the purchaser of a separate good or 
                service from the customer.
            (13) Sale and purchase.--The terms ``sale'' and 
        ``purchase'', and all variations thereof, shall include the 
        provision, lease, rent, license, and corresponding variations 
        thereof.
            (14) Seller.--
                    (A) In general.--The term ``seller'' means a person 
                making sales of covered electronic goods or services.
                    (B) Exceptions.--A person that provides billing 
                service or electronic delivery or transport service on 
                behalf of another unrelated or unaffiliated person, 
                with respect to the other person's sale of a covered 
                electronic good or service, shall not be treated as a 
                seller of that covered electronic good or service.
                    (C) Rule of construction.--Nothing in this 
                paragraph shall preclude the person providing the 
                billing service or electronic delivery or transport 
                service from entering into a contract with the seller 
                to assume the tax collection and remittance 
                responsibilities of the seller.
            (15) Separate and discrete transaction.--The term 
        ``separate and discrete transaction'' means a sale of a covered 
        electronic good or service or digital code sold in a single 
        transaction that does not involve any additional charges or 
        continued payment in order to maintain possession of the 
        digital good or access to or usage of the digital service, 
        audio or video programming service, or VoIP service.
            (16) State.--The term ``State'' means--
                    (A) any of the several States, the District of 
                Columbia, or any territory or possession of the United 
                States; and
                    (B) any governmental entity or person acting on 
                behalf of an entity described in subparagraph (A) and 
                with the authority to assess, impose, levy, or collect 
                taxes.
            (17) Tax.--
                    (A) In general.--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.
                    (B) Exclusions.--The term ``tax'' does not include 
                an ad valorem tax, a tax on or measured by capital, a 
                tax on or measured by net income, apportioned gross 
                income, apportioned revenue, apportioned taxable 
                margin, or apportioned gross receipts, or a State or 
                local jurisdiction business and occupation tax imposed 
                on a broad range of business activity in a State that 
                enacted a State tax on gross receipts after January 1, 
                1932, and before January 1, 1936.
            (18) VoIP service.--The term ``VoIP service'' means any 
        interconnected VoIP service, as defined in section 9.3 of title 
        47, Code of Federal Regulations, or any successor technology.

SEC. 8. EFFECTIVE DATE; APPLICATION.

    (a) General Rule.--This Act shall take effect 60 days after the 
date of enactment of this Act.
    (b) Exceptions.--A State or local jurisdiction shall have 2 years 
from the date of enactment of this Act to modify any State or local tax 
statute enacted prior to the date of enactment of this Act to conform 
to the provisions set forth in sections 4 and 5 of this Act.
    (c) Application to Liabilities and Pending Cases.--Nothing in this 
Act shall affect liability for taxes accrued and enforced before the 
effective date of this Act or affect ongoing litigation relating to 
such taxes.

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 unless such holding substantially limits 
or impairs the essential elements of this Act, in which case this Act 
shall be deemed invalid and of no legal effect as of the date that the 
judgment on such holding is final and no longer subject to appeal.
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