S.765 - Digital Goods and Services Tax Fairness Act of 2019

 

116th CONGRESS
1st Session

S. 765

 

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

IN THE SENATE OF THE UNITED STATES

March 13, 2019

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 2019”.

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.