Consider this scenario - a woman from Wisconsin is purchasing music downloads online while sitting in New York’s JFK Airport, from an Amazon distributor in California. Which state has the right to tax the purchase? Wisconsin because that is the location of the address on the woman’s billing account? New York because she was physically located there when she made the purchase? Or California because that is where the server that took and fulfilled the order was located?
Right now, the answer is all of them.
Nearly half of all Americans – 46 percent – now own smartphones. For Hispanics and African-Americans, however, the percentage is even higher, at 49 percent. Buying and selling online is now a way of life for many Americans, meaning digital goods and services are essential. This is especially true for minority and low-income users who rely heavily on digital devices for employment, education, economic and social opportunities and interactions.
In a new report titled “Taxes and Fees: Barriers to Hispanic Connectivity,” The Hispanic Institute found that the Hispanic community is particularly effected by the high taxes associated with online purchases because its members buy and sell more in the digital marketplace than any other ethnic group in the U.S. The report also notes that “adult Hispanics are projected to spend more than $500 million on mobile apps and $17.6 billion on mobile devices in 2012.”
In addition, Hispanics account for more than 43 percent of American households that are wireless-only, a larger share than either whites or blacks. Without Internet access and telephone service, Hispanics and all other Americans would be at a considerable disadvantage in matters ranging from education and employment opportunities to government and commercial interactions. Because of this reliance on digital goods and services, they are left vulnerable to unfair, inconsistent tax policy.
This is why Congress needs to pass the Digital Goods and Services Tax Fairness Act of 2011 (H.R. 1860/S. 971) and the Wireless Tax Fairness Act of 2011 (H.R. 1002/S. 540), two bipartisan bills that would support digital consumers by ensuring uniform, unbiased taxes. The Digital Goods and Services Fairness Act will prohibit the imposition of taxes by more than one jurisdiction on a single digital purchase, while the Wireless Tax Fairness Act will institute a five-year moratorium on new, discriminatory state and local taxes on mobile services, providers and property.
As Representative Steve Cohen (D-Tenn.), a co-sponsor of the Digital Goods and Services Tax Fairness Act, has said the law would benefit low-income consumers in a “fast moving, borderless marketplace that crosses state and national boundaries thousands and perhaps millions of times a day.” Although I have outlined how Hispanics will benefit from the passage of this legislation, it will also benefit all low-income consumers across the United States and protect consumers from the discriminatory taxes associated with online purchases of digital goods and services, which have become an essential part of modern American life.
West serves as board chairman and president of The Hispanic Institute.