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Digital Goods Commerce

What are digital goods?

Digital goods are defined as any good that is stored, delivered, and used in its electronic format. If you stream music, watch movies online through a streaming service, read or listen to an e-book, download and utilize software, or anything similar, you are a consumer of digital goods. Digital goods are NOT, however, all of e-commerce. If you buy physical goods like clothes or household items through an online broker like Amazon, you are participating in e-commerce, but you are not purchasing a digital good.

Why are they important?

As consumers become increasingly reliant on computers and phones, digital goods and e-commerce’s share of the economy is at an all-time high. Currently, 89% of Americans use the internet through cable, satellite, or mobile. 45% of those individuals have purchased digital goods, making up a part of the 1.77 billion online purchases in 2018. In 2017, there were over 178 billion app downloads in the world, with $122 billion in revenue generated from apps. Notably, there were 618.1 Billion on-demand US music streams in the same year. Year after year, these figures will continue to grow as more products, especially digital goods, become available online. The way we consume information and interact online has evolved incredibly over the past decade and there is no saying how that trend will continue over this one.  

Currently, three different states can claim a right to tax on the same purchase of a digital good.

  1. The state where an individual physically makes a purchase (e.g. subscribing to Spotify), just as with a traditional in-person purchase even if travelling.

  2. The state where the consumer officially resides according to their billing address on their credit or debit card.

  3. The state where the server that provides the digital good also has a claim to taxing the sale of digital goods.

 

Essentially, this rapidly evolving and growing economic sector are stuck in a tax structure that fails to properly recognize the existence of digital goods.  We should seek to stimulate the growth of our digital economy not tie it to outdated taxation methods that do not match its fluidity.

What can you do?

Join the push for common sense taxation and regulation of the digital economy by supporting S. 765 and H.R. 1725, Digital Goods and Services Tax Fairness Act of 2019. If you are a lawmaker, consider becoming a cosponsor. If you are in the digital goods business, coordinate your support with other stakeholders (like the Download Fairness Coalition) to advocate for the changes necessary. If you are an individual, support those bills through outreach to your federally elected official to encourage them to support these critical pieces of legislation. As Americans, we have a responsibility to support the growth of our digital economy into the future.