The House Judiciary Committee approved legislation Thursday that would bar states from taxing digital goods such as a movie download at a higher rate than its physical counterpart such as a DVD.
Even though the panel approved the bill by voice vote, several members outlined issues that they say need to be fixed before the bill moves to the House floor, including concerns about the measure's impact on states and local governments.
In addition to requiring equal tax treatment for both digital and tangible goods, the bill also makes clear which state has the right to tax a digital good: the one where the consumer lives.
"State and local taxes should apply equally to goods regardless of how they are consumed," House Judiciary Chairman Lamar Smith, R-Texas, the bill's chief sponsor, said.
In response to some of the concerns raised by state and local officials, the committee adopted a manager's amendment that changed some definitions and also removed a provision requiring challenges to the rules to be filed in federal court. The panel also adopted an amendment from Rep. Judy Chu, D-Calif., that would require the Government Accountability Office to study the bill's impact on state and local tax revenues.
The bill "would reduce future state and local revenues and therefore push these entities into further economic distress," Judiciary ranking member John Conyers, D-Mich., said.
To counter this, he urged the committee to take up a related bill offered by Reps. Steve Womack, R-Ark., and Jackie Speier, D-Calif., that would close a loophole left by a 1992 Supreme Court decision that found retailers do not have to collect sales taxes from customers in states where those companies have no physical presence.
While not committing to mark up the Womack-Speier bill, Smith noted that the committee is expected to hold a hearing on the legislation in late July.