The Minnesota state legislature is trying to ram through a tax omnibus bill that will tax digital products such as greeting cards transferred electronically as well as online video and electronic games. After a conference committee resolved the differences in the Senate and House bills, the legislation now awaits the governor signature for approval.
While Minnesota looks for a digital tax hike on citizens, Virginia is doing the opposite. On May 2, 2013 the Virginia Tax Commission ruled that the sales or rental of video content stored in the cloud and streamed to the customer’s device was not subject to the Communication Services Tax (CST). Also included in this ruling were content streamed or delivered electronically, such as book and music not being subject to sales and use tax in Virginia.
The cases of Virginia and Minnesota are important because it provides two distinctly different examples of states addressing digital goods. Minnesota, where Democrats have majorities in both the House and Senate, believe it is good public policy to tax digital goods and not worry about the consequences. Virginia on the other hand is sticking to the ruling handed down by the CST instead of trying to come up with creative ways to tax its citizens.
Meanwhile Connecticut is raising digital taxes as well. Digital Liberty’s Katie McAuliffe is quoted as saying "You're just downloading a license," McAuliffe said. "You don't actually own the products. You have less ownership and less power over them," in the Norwich Bulletin article. Instead of reforming government and reigning in spending, Governor Dan Malloy and the Democrat-led state legislature are looking to plug their $2.5 budget deficit by going after digital goods. Going after digital goods seems to be the latest excuse from Democrats who are trying to justify raising taxes.
Digital Liberty maintains that digital taxes aren’t really about a level playing field, they are about getting revenue. Especially taxing cloud services. That's a tax on economic growth. We shouldn't be taxing emerging sectors that add jobs and efficiency to our economy right now.
With all the inventive ways that states are trying to raise revenue Congress should keep it's ear to the ground to prevent abusive taxes. The Digital Goods Fairness legislation introduced last Congress would ensure that the same digital transaction cannot be taxed simultaneously by multiple states. Congress should reintroduce this legislation before states get too carried away.