I 116TH CONGRESS 1ST SESSION H. R. 1725 To promote neutrality, simplicity, and fairness in the taxation of digital goods and digital services. IN THE HOUSE OF REPRESENTATIVES MARCH 13, 2019 Mr. COHEN (for himself and Mr. RATCLIFFE) introduced the following bill; which was referred to the Committee on the Judiciary 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 Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Digital Goods and 4 Services Tax Fairness Act of 2019’’. 5 SEC. 2. MULTIPLE AND DISCRIMINATORY TAXES PROHIB- 6 ITED. 7 (a) MULTIPLE TAXES.—No State or local jurisdiction 8 shall impose multiple taxes on the sale or use of a covered 9 electronic good or service. 10 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 2 •HR 1725 IH (b) DISCRIMINATORY TAXES.—No State or local ju- 1 risdiction shall impose discriminatory taxes on the sale or 2 use of a digital good or a digital service. 3 SEC. 3. SOURCING LIMITATION. 4 Subject to section 6(a), taxes on the sale of a covered 5 electronic good or service may only be imposed by a State 6 or local jurisdiction whose territorial limits encompass the 7 customer tax address. 8 SEC. 4. CUSTOMER TAX ADDRESS. 9 (a) SELLER OBLIGATION.— 10 (1) IN GENERAL.—Subject to subsection (e)(2), 11 a seller shall be responsible for obtaining and main- 12 taining in the ordinary course of business the cus- 13 tomer tax address with respect to the sale of a cov- 14 ered electronic good or service, and shall be respon- 15 sible for collecting and remitting the correct amount 16 of tax for the State and local jurisdictions whose ter- 17 ritorial limits encompass the customer tax address if 18 the State or local jurisdiction has the authority to 19 require such collection and remittance by the seller. 20 (2) CERTAIN TRANSACTIONS.—When a cus- 21 tomer tax address is not a business location of the 22 seller under clause (i) of section 7(4)(A)— 23 (A) if the sale is a separate and discrete 24 transaction, then a seller shall use reasonable 25 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 3 •HR 1725 IH efforts to obtain a customer tax address, as 1 such efforts are described in clauses (iii), (iv), 2 and (v) of section 7(4)(A), before resorting to 3 using a customer tax address as determined by 4 clause (vi) of such section 7(4)(A); and 5 (B) if the sale is not a separate and dis- 6 crete transaction, then a seller shall use reason- 7 able efforts to obtain a customer tax address, 8 as such efforts are described in clauses (ii), 9 (iii), (iv), and (v) of section 7(4)(A), before re- 10 sorting to using a customer tax address as de- 11 termined by clause (vi) of such section 7(4)(A). 12 (b) RELIANCE ON CUSTOMER-PROVIDED INFORMA- 13 TION.—A seller that relies in good faith on information 14 provided by a customer to determine a customer tax ad- 15 dress shall not be held liable for any additional tax based 16 on a different determination of that customer tax address 17 by a State or local jurisdiction or court of competent juris- 18 diction, unless and until binding notice is given as pro- 19 vided in subsection (c). 20 (c) ADDRESS CORRECTION.—If a State or local juris- 21 diction is authorized under State law to administer a tax, 22 and the jurisdiction determines that the customer tax ad- 23 dress determined by a seller is not the customer tax ad- 24 dress that would have been determined under section 25 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 4 •HR 1725 IH 7(4)(A) if the seller had the additional information pro- 1 vided by the State or local jurisdiction, then the jurisdic- 2 tion may give binding notice to the seller to correct the 3 customer tax address on a prospective basis, effective not 4 less than 45 days after the date of such notice, if— 5 (1) when the determination is made by a local 6 jurisdiction, such local jurisdiction obtains the con- 7 sent of all affected local jurisdictions within the 8 State before giving such notice of determination; and 9 (2) before the State or local jurisdiction gives 10 such notice of determination, the customer is given 11 an opportunity to demonstrate in accordance with 12 applicable State or local tax administrative proce- 13 dures that the address used is the customer tax ad- 14 dress. 15 (d) COORDINATION WITH SOURCING OF MOBILE 16 TELECOMMUNICATIONS SERVICE.— 17 (1) IN GENERAL.—If— 18 (A) a covered electronic good or service is 19 sold to a customer by a home service provider 20 of mobile telecommunications service that is 21 subject to being sourced under section 117 of 22 title 4, United States Code, or the charges for 23 a covered electronic good or service are billed to 24 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 5 •HR 1725 IH the customer by such a home service provider; 1 and 2 (B) the covered electronic good or service 3 is delivered, transferred, or provided electroni- 4 cally by means of mobile telecommunications 5 service that is deemed to be provided by such 6 home service provider under section 117 of such 7 title, 8 then the home service provider and, if different, the 9 seller of the covered electronic good or service, may 10 presume that the customer’s place of primary use 11 for such mobile telecommunications service is the 12 customer tax address described in section 7(4)(A)(ii) 13 with respect to the sale of such covered electronic 14 good or service. 15 (2) DEFINITIONS.—For purposes of this sub- 16 section, the terms ‘‘home service provider’’, ‘‘mobile 17 telecommunications service’’, and ‘‘place of primary 18 use’’ have the same meanings as in section 124 of 19 title 4, United States Code. 20 (e) MULTIPLE LOCATIONS.— 21 (1) IN GENERAL.—If a digital service, audio or 22 video programming service, or VoIP service is sold 23 to a customer and available for use by the customer 24 in multiple locations simultaneously, the seller may 25 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 6 •HR 1725 IH determine the customer tax addresses using a rea- 1 sonable and consistent method based on the address- 2 es of use as provided by the customer and deter- 3 mined in agreement with the customer at the time 4 of sale or at a later time. 5 (2) DIRECT CUSTOMER PAYMENT.— 6 (A) ESTABLISHMENT OF DIRECT PAYMENT 7 PROCEDURES.—Each State and local jurisdic- 8 tion shall provide reasonable procedures that 9 permit the direct payment by a qualified cus- 10 tomer, as determined under procedures estab- 11 lished by the State or local jurisdiction, of taxes 12 that are on the sale of covered electronic goods 13 or services to multiple locations of the customer 14 and that would, absent such procedures, be re- 15 quired or permitted by law to be collected from 16 the customer by the seller. 17 (B) EFFECT OF CUSTOMER COMPLIANCE 18 WITH DIRECT PAYMENT PROCEDURES.—When 19 a qualified customer elects to pay tax directly 20 under the procedures established under sub- 21 paragraph (A), the seller shall— 22 (i) have no obligation to obtain the 23 multiple customer tax addresses under sub- 24 section (a); and 25 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 7 •HR 1725 IH (ii) not be liable for such tax, provided 1 the seller follows the State and local proce- 2 dures and maintains appropriate docu- 3 mentation in its books and records. 4 SEC. 5. TREATMENT OF BUNDLED TRANSACTIONS, DIGITAL 5 CODES, AND OTHER RULES. 6 (a) BUNDLED TRANSACTION.—If a charge for a dis- 7 tinct and identifiable covered electronic good or service is 8 aggregated with and not separately stated from one or 9 more charges for other distinct and identifiable goods or 10 services, which may include other covered electronic goods 11 or services, and any part of the aggregation is subject to 12 taxation, then the entire aggregation may be subject to 13 taxation, except to the extent that the seller can identify, 14 by reasonable and verifiable standards, one or more 15 charges for the nontaxable goods or services from its books 16 and records kept in the ordinary course of business. 17 (b) DIGITAL CODE.—The tax treatment of the sale 18 of a digital code shall be the same as the tax treatment 19 of the sale of the covered electronic good or service to 20 which the digital code relates. 21 (c) APPLICATION OF FIXED CHARGES TO VOIP 22 SERVICE.—With respect to VoIP service, if any tax is 23 based on a fixed charge, such fixed charge shall be based 24 on the number of simultaneous outbound calls the cus- 25 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 8 •HR 1725 IH tomer has purchased the right to place, regardless of ac- 1 tual usage or the number of the customer’s phone num- 2 bers. 3 (d) RULE OF CONSTRUCTION.—The sale of a digital 4 code shall be considered the sale transaction for purposes 5 of this Act. 6 SEC. 6. NO INFERENCE. 7 (a) CUSTOMER LIABILITY.—Subject to the prohibi- 8 tion provided in section 2, nothing in this Act modifies, 9 impairs, supersedes, or authorizes the modification, im- 10 pairment, or supersession of any law allowing a State or 11 local jurisdiction to impose tax on and collect tax directly 12 from a customer based upon use of a covered electronic 13 good or service in such State. 14 (b) NON-TAX MATTERS.—This Act shall not be con- 15 strued to apply in, or to affect, any non-tax regulatory 16 matter or other context. 17 (c) STATE TAX MATTERS.—The definitions con- 18 tained in this Act are intended to be used with respect 19 to interpreting this Act. Nothing in this Act shall prohibit 20 a State or local jurisdiction from adopting different no- 21 menclature to enforce the provisions set forth in this Act. 22 (d) INTERNET TAX FREEDOM ACT.—Nothing in this 23 Act modifies, impairs, supersedes, or authorizes the modi- 24 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 9 •HR 1725 IH fication, impairment, or supersession of the Internet Tax 1 Freedom Act (47 U.S.C. 151 note). 2 SEC. 7. DEFINITIONS. 3 In this Act, the following definitions shall apply: 4 (1) AUDIO OR VIDEO PROGRAMMING SERV- 5 ICE.—The term ‘‘audio or video programming serv- 6 ice’’ means programming provided by, or generally 7 considered comparable to programming provided by, 8 a radio or television broadcast station, regardless of 9 the facilities used to deliver or provide such service. 10 (2) COVERED ELECTRONIC GOOD OR SERV- 11 ICE.—The term ‘‘covered electronic good or service’’ 12 means a digital good, digital service, audio or video 13 programming service, or VoIP service. 14 (3) CUSTOMER.—The term ‘‘customer’’ means 15 a person that purchases a covered electronic good or 16 service or digital code. 17 (4) CUSTOMER TAX ADDRESS.— 18 (A) IN GENERAL.—The term ‘‘customer 19 tax address’’ means— 20 (i) with respect to the sale of a cov- 21 ered electronic good or service that is re- 22 ceived by the customer at a business loca- 23 tion of the seller, such business location; 24 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 10 •HR 1725 IH (ii) if clause (i) does not apply and 1 the primary use location of the covered 2 electronic good or service is known by the 3 seller, such location; 4 (iii) if neither clause (i) nor clause (ii) 5 applies, and if the location where the cov- 6 ered electronic good or service is received 7 by the customer, or by a donee of the cus- 8 tomer that is identified by such customer, 9 is known to the seller and maintained in 10 the ordinary course of the seller’s business, 11 such location; 12 (iv) if none of clauses (i) through (iii) 13 applies, the location indicated by an ad- 14 dress for the customer that is available 15 from the business records of the seller that 16 are maintained in the ordinary course of 17 the seller’s business, when use of the ad- 18 dress does not constitute bad faith; 19 (v) if none of clauses (i) through (iv) 20 applies, the location indicated by an ad- 21 dress for the customer obtained during the 22 consummation of the sale, including the 23 address of a customer’s payment instru- 24 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 11 •HR 1725 IH ment, when use of this address does not 1 constitute bad faith; or 2 (vi) if none of clauses (i) through (v) 3 applies, including the circumstance in 4 which the seller is without sufficient infor- 5 mation to apply such paragraphs, one of 6 the following locations, as selected by the 7 seller, provided that such location is con- 8 sistently used by the seller for all such 9 sales to which this clause applies: 10 (I) The location in the United 11 States of the headquarters of the sell- 12 er’s business. 13 (II) The location in the United 14 States where the seller has the great- 15 est number of employees. 16 (III) The location in the United 17 States— 18 (aa) from which the seller 19 makes digital goods available for 20 electronic delivery; or 21 (bb) from which digital serv- 22 ices, VoIP services, or audio or 23 video programming services are 24 provided electronically. 25 VerDate Sep 11 2014 00:44 Mar 23, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H1725.IH H1725 pamtmann on DSKBFK8HB2PROD with BILLS 12 •HR 1725 IH (B) EXCLUSION.—For purposes of this 1 paragraph, the term ‘‘location’’ does not include 2 the location of a server, machine, or device, in- 3 cluding an intermediary server, that is used 4 simply for routing or storage. 5 (5) DELIVERED OR TRANSFERRED ELECTRONI- 6 CALLY; PROVIDED ELECTRONICALLY.—The term 7 ‘‘delivered or transferred electronically’’ means the 8 delivery or transfer of a digital good by means other 9 than tangible storage media, and the term ‘‘provided 10 electronically’’ means the provision of a digital serv- 11 ice, audio or video [Text truncated for display. 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