Relevant federal law and proposals

Audio from MTC’s November 14, 2023 Uniformity Committee ITFA Panel and Discussion and Status Report (links to MP3)

– Executive Summary of ITFA Panel and Discussion

– Transcript (unedited) of ITFA Panel and Discussion

– Powerpoint from ITFA Panel and Discussion

Permanent Internet Tax Freedom Act 47 U.S. 151 note (background)

• • “Electronic commerce” (Sec. 1105(3)) means any transaction conducted over the Internet or through Internet access, comprising the sale, lease, license, offer, or delivery of property, goods, services, or information, whether or not for consideration, and includes the provision of Internet access.
  • “Internet” (Sec. 1105(4)) means collectively the myriad of computer and telecommunications facilities, including equipment and operating software, which comprise the interconnected world-wide network of networks that employ the Transmission Control Protocol/Internet Protocol, or any predecessor or successor protocols to such protocol, to communicate information of all kinds by wire or radio.
  • Anti-discrimination language – Sec. 1105(2): Discriminatory tax.—The term ‘discriminatory tax’ means—

 “(A) any tax imposed by a State or political subdivision thereof on electronic commerce that—

 “(i) is not generally imposed and legally collectible by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means;

 “(ii) is not generally imposed and legally collectible at the same rate by such State or such political subdivision on transactions involving similar property, goods, services, or information accomplished through other means, unless the rate is lower as part of a phase-out of the tax over not more than a 5-year period;

 “(iii) imposes an obligation to collect or pay the tax on a different person or entity than in the case of transactions involving similar property, goods, services, or information accomplished through other means;

 “(iv) establishes a classification of Internet access service providers or online service providers for purposes of establishing a higher tax rate to be imposed on such providers than the tax rate generally applied to providers of similar information services delivered through other means; or

 “(B) any tax imposed by a State or political subdivision thereof, if—

 “(i)the sole ability to access a site on a remote seller’s out-of-State computer server is considered a factor in determining a remote seller’s tax collection obligation; or

 “(ii)a provider of Internet access service or online services is deemed to be the agent of a remote seller for determining tax collection obligations solely as a result of—

     “(I)the display of a remote seller’s information or content on the out-of-State computer server of a provider of Internet access service or online services; or

     “(II)the processing of orders through the out-of-State computer server of a provider of Internet access service or online services.

• Comment received by staff – Some in the business community consider the IFTA definition of “electronic commerce” to establish a boundary between digital services that are provided over the internet versus those that are commonly referred to as “facility-based,” such as telecommunications services. These services are typically subject to robust non-tax regulations. This boundary should be preserved so that facility-based digital services are taxed according to existing laws and not subject to potentially broader definitions of digital products, including, for example, the SST definition for digital audio-visual work.

First introduced in Congress in 2010, the Digital Goods and Services Tax Fairness Act would preempt taxes on digital goods and services unless imposed on “similar” items and would require sales be sourced according to uniform rules—often to destination. The bill, however, failed to provide the destination state with jurisdiction over the seller. The Congressional Budget Office found the bill constituted an “unfunded mandate” and imposed costs on the states in the form of forgone revenues “totaling more than $3 billion in the first full year and at least that amount in each subsequent year

The Mobile Telecommunications Sourcing Act has arisen a number of times in the context of bundling because it established sourcing requirements for state and local taxation of mobile telecommunication services.  Under the Act, mobile communications services are taxable at the location of the customer’s “primary place of use,” which is defined as the customer’s residential or business address.